1933 Act File No. 333-7008
1940 Act File No. 811-8227
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933..... X
Post-Effective Amendment No. 3 .......................... X
----- --
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No.___9__ ........................................ __X_
DEUTSCHE FUNDS, INC.
(Exact name of Registrant as Specified in Charter)
5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-7010
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
Victor R. Siclari, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b) _ on
___________________pursuant to paragraph (b)(1)(v) __ 60 days after filing
pursuant to paragraph (a) (i) __ on ___________________pursuant to paragraph (a)
(i) __ 75 days after filing pursuant to paragraph (a)(ii)
on 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.
Copies To:
John T. Bostelman, Esquire
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
<PAGE>
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of Deutsche Funds, Inc.,
which is comprised of eleven funds, relates to 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, Deutsche US Money Market
Fund, and Deutsche Institutional US Money Market Fund, and is comprised of the
following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page.................... Cover Page
Item 2. Synopsis...................... Expense Summary
Item 3. Condensed Financial
Information Financial Highlights
Item 4. General Description of
Registrant.................... Investment Objectives
Policies and Restrictions;
Investing in the Funds
Item 5. Management of the Fund Management of the Corporation
and the Portfolio Trust;
Expense Summary
Item 6. Capital Stock and Other
Securities Investing in the Funds
Item 7. Purchase of Securities Being
Offered....................... Purchase of Shares; Special
Purchase Features
Item 8. Redemption or Repurchase...... Redemption of Shares;
Exchange Privileges; Special
Redemption Features; Contingent
Deferred Sales Charge
Item 9. Pending Legal Proceedings..... Not applicable
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
(Note: Major Headings Only)
Item 10. Cover Page.................... Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and
History Not Applicable
Item 13. Investment Objectives and
Policies...................... Investment Objectives and
Policies; Investment Restrictions
Item 14. Management of the Fund........ Directors, Trustees and
Officers; Manager;
Administrator; Off-Shore
Agent, Service Agent; Distributor
Item 15. Control Persons and Principal
Holders of Securities......... Directors, Trustees and
Officers
Item 16. Investment Advisory and Other
Services...................... Adviser; Administrator; Off-
Shore Agent; Distributor;
Servicing Agent
Item 17. Brokerage Allocation.......... Portfolio Transactions
Item 18. Capital Stock and Other
Securities Description of Shares
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered................. Purchase of Shares;
Redemption of Shares; Net Asset
Value; Redemption in Kind
Item 20. Tax Status.................... Federal Taxes
Item 21. Underwriters.................. Administrator; Distributor;
Purchase of Shares
Item 22. Calculation of Performance
Data Computation of Performance
Item 23. Financial Statements Filed in Part B
prospectus
dated October 31, 1998
Deutsche Top 50 World
(Class A Shares and Class B Shares)
Deutsche Top 50 Europe
(Class A Shares, Class B Shares and Class C Shares)
Deutsche Top 50 Asia
(Class A Shares and Class B Shares)
Deutsche Top 50 US
(Class A Shares, Class B Shares and Class C Shares)
An Open-End
Management
Investment
Company
DEUTSCHE TOP 50 WORLD (Class A Shares and Class B Shares)
DEUTSCHE TOP 50 EUROPE (Class A Shares, Class B Shares and Class C Shares)
DEUTSCHE TOP 50 ASIA (Class A Shares and Class B Shares)
DEUTSCHE TOP 50 US (Class A Shares, Class B Shares and Class C Shares)
5800 Corporate Drive
Pittsburgh, PA 15237-7010
For information call toll-free 888-4-DEUTSCHE (888-433-8872)
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") (together with the Funds, the "Deutsche Funds"). 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 ("SEC") in a Statement of Additional
Information dated October 31, 1998 (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, CLASS B SHARES OR CLASS C 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.
Prospectus dated October 31, 1998
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary........................................ 2
Financial Highlights................................... 4
The Funds.............................................. 6
Investment Objective, Policies and Restrictions........ 6
All Funds............................................. 7
Risk Factors........................................... 10
Equity Investments.................................... 10
Foreign Investments (Each Portfolio Except Top 50
US Portfolio)......................................... 10
Emerging Markets (Each Portfolio Except Top 50
US Portfolio)......................................... 11
Fixed Income Securities............................... 11
Futures, Options and Warrants......................... 11
Geographic Investment Emphasis........................ 12
Local Securities Markets.............................. 12
Management of the Corporation and the Portfolio Trust.. 12
Manager............................................... 12
Adviser............................................... 12
Portfolio Management.................................. 13
Administrator......................................... 13
Operations Agent...................................... 13
Administrative Agent.................................. 13
Distributor........................................... 14
Transfer Agent, Custodian and Fund Accountant......... 14
Year 2000 Statement................................... 14
Expenses.............................................. 15
Portfolio Brokerage................................... 15
Investing in the Funds................................. 16
Class A Shares........................................ 16
Class B Shares........................................ 16
Class C Shares........................................ 16
Other Share Differences............................... 16
Purchase of Shares..................................... 16
Investing in Class A Shares........................... 16
Investing in Class B Shares and Class C Shares........ 18
Conversion of Class B Shares.......................... 18
Purchasing Shares Through a Financial Intermediary.... 18
Purchasing Shares by Wire............................. 19
Purchasing Shares by Check............................ 19
Special Purchase Features.............................. 19
Systematic Investment Program......................... 19
Retirement Plans...................................... 19
Exchange Privilege..................................... 19
Class A Shares........................................ 19
Class B Shares........................................ 19
Class C Shares........................................ 19
Requirements for Exchange............................. 19
Tax Consequences...................................... 19
Making an Exchange.................................... 20
Telephone Instructions................................ 20
Redemption of Shares................................... 20
Redeeming Shares Through a Financial Intermediary..... 20
Redeeming Shares by Telephone......................... 20
Redeeming Shares by Mail.............................. 20
Special Redemption Features............................ 21
Systematic Withdrawal Program......................... 21
Contingent Deferred Sales Charge....................... 21
Class A Shares........................................ 21
Class B Shares........................................ 21
Class C Shares........................................ 21
Class A Shares, Class B Shares and Class C Shares..... 21
Elimination of Contingent Deferred Sales Charge....... 21
Account and Share Information.......................... 22
Certificates and Confirmations........................ 22
Accounts with Low Balances............................ 22
Dividends and Distributions............................ 22
Net Asset Value........................................ 22
Organization........................................... 22
Taxes.................................................. 23
Additional Information................................. 24
Appendix A............................................. 24
</TABLE>
EXPENSE SUMMARY
The following table summarizes estimated shareholder transaction and annual
operating expenses of Class A Shares and Class B Shares of each Fund and Class C
Shares for Top 50 Europe and Top 50 US, and the allocable operating expenses of
their corresponding Portfolios. 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
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 5.50% None None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None None None
Contingent Deferred Sales Charge
(as a percentage of original purchase price or redemption proceeds, as
applicable) 0.00%(1) 5.00%(2) 1.00%(3)
Redemption Fees (as a percentage of
amount redeemed, if applicable) None None None
Exchange Fees None None None
</TABLE>
(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."
(2) In the first year, declining to 1.00% in the sixth year and 0% thereafter.
(3) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within
one year of their purchase date. For a more complete description, see
"Contingent Deferred Sales Charge."
Expense Table
Annual Operating Expenses (After Expense Reimbursement)
(As a percentage of average net assets)
Top 50 World
Top 50 Europe Top 50 Asia Top 50 US
Class B Class B
and and
Class A Class C Class A Class B Class A Class C
Advisory fees 1.00% 1.00% 1.00% 1.00% 0.85% 0.85%
12b-1 Fees
Service 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Distribution 0.00% 0.75% 0.00% 0.75% 0.00% 0.75%
Other Expenses
(after expense
reimbursement) 0.35% 0.35% 0.35% 0.35% 0.40% 0.40%
Total Operating
Expenses (after
expense reimbursement) 1.60% 2.35% 1.60% 2.35% 1.50% 2.25%
EXPENSE SUMMARY (CONTINUED)
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:
<TABLE>
<CAPTION>
Top 50 World
Top 50 Europe Top 50 Asia Top 50 US
Class A Class B Class C Class A Class B Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 70 $ 74 $ 34 $ 70 $ 75 $ 69 $ 74 $ 33
3 Years $103 $105 $ 73 $103 $106 $100 $103 $ 70
5 Years $137 $148 $126 $137 $148 $132 $143 $120
10 Years $235 $269 $269 $235 $269 $224 $258 $258
An investor would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2) no
redemption at the end of each time period:
1 Yea $ 70 $ 24 $ 24 $ 70 $ 24 $ 69 $ 23 $ 23
3 Years $103 $ 73 $ 73 $103 $ 73 $100 $ 70 $ 70
5 Years $137 $126 $126 $137 $126 $132 $120 $120
10 Years $235 $269 $269 $235 $269 $224 $258 $258
</TABLE>
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in a
Fund would bear. Wire transferred redemptions of less than $5,000 may be subject
to additional fees. The fees and expenses included in "Other Expenses" are
estimated for each Fund's fiscal year ending August 31, 1999 and include (i)
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
the expenses of each Fund through at least August 31, 1999, to the extent
necessary to maintain each Fund's ratio of total operating expenses to average
annual net assets at the level indicated above. Absent reimbursement of
expenses, estimated "Other Expenses" for the first fiscal year of the Top 50
World, Top 50 Europe, Top 50 Asia and the Top 50 US were 126.24%%, 15.28%,
245.80% and 10.48%, respectively, and "Total Operating Expenses" were 127.49%,
16.53%, 247.05% and 11.58%, respectively, of the Fund's average daily net assets
attributed to Class A Shares and 128.24%, 17.28%, 247.80% and 12.33%,
respectively, of the Fund's average daily net assets attributed to Class B
Shares, and 17.28% and 12.33%, respectively of the Top 50 Europe and the Top 50
US average daily net assets attributed to Class C 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."
Because the fees paid under the 12b-1 Plan of the Fund are charged against the
assets of the Fund, long-term shareholders may indirectly pay an amount that is
more than the economic equivalent of the maximum front-end sales charge that
such Fund would be permitted to charge. The example is hypothetical; it is
included solely for illustrative purposes. It should not be considered a
representation of future performance; actual expenses may be more or less than
those shown.
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
For the period from Commencement of Operations to August 31,
1998(a)
Selected data for a Class A share of common stock outstanding throughout the
period.
The following table has been audited by PricewaterhouseCoopers LLP, the Funds'
independent accountants. Their report dated October 16, 1998, on the Funds'
financial statements for the period ended August 31, 1998, and on the following
table for the periods presented, is included in the Funds' Annual Report. This
table should be read in conjunction with the Funds' financial statements and
notes thereto, which is included in the Funds' Annual Report. The Annual Report
is incorporated by reference into and accompanies the Statement of Additional
Information. They may be obtained from the Funds free of charge. Class C Shares
were not offered to the public prior to September 1, 1998.
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
<S> <C> <C> <C> <C>
Net asset value at beginning of
period $ 12.50 $ 12.50 $ 12.50 $ 12.50
Investment operations:
Net investment income
(loss) 0.01 0.02 0.01 (0.03)
Net realized and unrealized gain
(loss) on investments and
foreign currency
allocated from corresponding Deutsche
Portfolio (0.16) 0.51 (4.33) 0.15
Increase (decrease) from investment
operations (0.15) 0.53 (4.32) 0.12
Net asset value at end of
period $ 12.35 $ 13.03 $ 8.18 $ 12.62
Total Return (based on net asset
value)(c)* (1.20)% 4.24% (34.56)% 0.96%
Ratios and Supplemental Data:
Net assets, end of period
(000's) $ 181 $ 1,208 $ 41 $ 2,056
Ratios to average net assets:
Expenses(b)** 1.60% 1.60% 1.60% 1.50%
Net investment income
(loss)(b)** 0.13% 0.50% 0.15% (0.44)%
(a) Commencement of
operations: 10/2/97 10/2/97 10/14/97 10/2/97
</TABLE>
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as
follows:
<TABLE>
<S> <C> <C> <C> <C>
Expenses to average net assets** 127.49% 16.53% 247.05% 11.58%
Net investment loss to average net assets** (125.76)% (14.43)% (245.30)% (10.52)%
</TABLE>
(c) Total Return based on net asset value, excluding the effect of shareholder
transaction charges, assumes a purchase of common stock at net asset value
at commencement of operations, reinvestment of distributions at net asset
value and a sale on the last day of the period, also at net asset value.
During the period, total return would have been lower had certain expenses
not been reimbursed by the Manager.
* Not annualized
** Annualized
FINANCIAL HIGHLIGHTS (CONTINUED)
Deutsche Funds, Inc.
For the period from Inception Date to August 31, 1998(a)
Selected data for a Class B share of common stock outstanding throughout the
period.
The following table has been audited by PricewaterhouseCoopers LLP, the Funds'
independent accountants. Their report dated October 16, 1998, on the Funds'
financial statements for the period ended August 31, 1998, and on the following
table for the periods presented, is included in the Funds' Annual Report. This
table should be read in conjunction with the Funds' financial statements and
notes thereto, which is included in the Funds' Annual Report. The Annual Report
is incorporated by reference into and accompanies the Statement of Additional
Information. They may be obtained from the Funds free of charge. Class C Shares
were not offered to the public prior to September 1, 1998.
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
<S> <C> <C> <C> <C>
Net asset value at beginning of
period $ 12.50 $ 12.50 $ 12.50 $ 12.50
Investment operations:
Net investment
loss (0.01) (0.01) (0.02) (0.06)
Net realized and unrealized loss
on investments and foreign currency
allocated from corresponding Deutsche
Portfolio (1.41) (0.84) (3.20) (1.48)
Decrease from investment
operations (1.42) (0.85) (3.22) (1.54)
Net asset value at end of
period $ 11.08 $ 11.65 $ 9.28 $ 10.96
Total Return (based on net asset
value)(c)* (11.36)% (6.80)% (25.76)% (12.32)%
Ratios and Supplemental Data:
Net assets, end of period
(000's) $ 90 $ 3,120 $ 50 $ 436
Ratios to average net assets:
Expenses(b)** 2.35% 2.35% 2.35% 2.25%
Net investment
loss(b)** (0.84)% (0.46)% (0.51)% (1.35)%
(a)
Inception date: 5/4/98 3/30/98 5/5/98 3/18/98
</TABLE>
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment loss to average net assets would have been as follows:
<TABLE>
<S> <C> <C> <C> <C>
Expenses to average net assets** 128.24% 17.28% 247.80% 12.33%
Net investment loss to average
net assets** (126.73)% (15.39)% (245.96)% (11.43)%
</TABLE>
(c) Total Return based on net asset value, excluding the effect of shareholder
transaction charges, assumes a purchase of common stock at net asset value
at inception date, reinvestment of distributions at net asset value and a
sale on the last day of the period, also at net asset value. During the
period, total return would have been lower had certain expenses not been
reimbursed by the Manager.
* Not annualized
** Annualized
THE FUNDS
Each Fund is a non-diversified, open-end management investment company and is a
series of shares of common stock of the Corporation (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 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 Bank Securities Investment Management Inc. is the investment
adviser of the Top 50 US Portfolio (the "DBSIM Adviser"); and together with the
DWS Adviser or severally as the context may require, the "Adviser." DFM and 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 (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 "Directors, Trustees, and Officers" 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.
Each Fund seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Portfolio, an open-end management
investment 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:
. strong market position within its respective market;
. profitability, predictability and duration of earnings growth, reflected in
sound balance sheet ratios and financial statements;
. high quality of management with an orientation toward strong, long-term
earnings;
. long-range strategic plans in place;
. generally publicly-held with a 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
analyses 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 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 least three regions around the world--e.g., Europe,
North America, Asia.
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 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 ("Member States"), those which are party to the
Convention on the European Economic Area ("CEEA"), Poland, 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 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, and 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 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 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. price/earnings or P/Eratio), 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 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:
. the Federal Republic of Germany ("Germany"), a special purpose fund of
Germany, a state of Germany, the European Union or a member state of the
Organisation for Economic Cooperation and Development (an "OECD Member"),
. 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),
. 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,
. other debtors, if guaranteed as to the payment of interest
and repayment of principal by one of the aforementioned bodies, or
. 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, 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 rating categories of Moody's
Investors Service, Inc. ("Moody's"), currently Aaa, Aa, A and Baa, or of
Standard & Poor's ("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. Fixed income securities rated Baa by Moody's or BBB by S&P have
speculative characteristics. 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 Germany, the states of Germany, 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 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 (written) 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 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, options 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 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. Each Portfolio other than the Top 50
US Portfolio may enter into transactions for non-hedging purposes 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 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 for 50 US Portfolio, may enter into foreign currency
transactions to hedge currency risks associated with the assets of the Portfolio
denominated in foreign currencies. A Portfolio may purchase or sell foreign
currency contracts for forward delivery. A Portfolio may also 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 does not currently intend to engage in foreign currency
transactions as an investment strategy. However, each Portfolio (except for Top
50 US 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 total net 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 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 one-third 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.
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 in effect 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.
The Top 50 World Portfolio will invest at least 65% of its total assets in
equity securities. The Top 50 Europe Portfolio will invest at least 65% of its
total assets in the equity securities of issuers located in European
countries.
The 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. The 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 is permitted to borrow money although, as an operating policy,
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.
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. Because the Top 50
Europe Portfolio does not presently intend to engage in currency transactions to
hedge currency risks, this Portfolio may be more exposed to the aforementioned
currency risks. See "Foreign Currency Exchange Transactions" in the Statement of
Additional Information.
On January 1, 1999, eleven of the fifteen Member States will have their currency
exchange rate irrevocably fixed to a single European currency, the euro. The
euro will become legal tender in those countries from this date. National
currencies will continue to circulate until they are replaced by euro coins and
bank notes on July 1, 2002. The pending unification of European currency and
decision by certain countries not to participate are likely to create
uncertainty in the European markets and thereby increase volatility of the
various currencies and securities. The European securities markets may become
less liquid. These events can adversely affect the Portfolios' investment and
performance, as detailed under "European Currency Unification" in the Statement
of Additional Information.
Certain of the risks associated with foreign investments are heightened for the
Top 50 Asia Portfolio and Top 50 World Portfolio, which invest in certain Asian
countries. In some cases, political uncertainty and political corruption in such
countries could threaten to reverse favorable trends toward market and economic
reform, privatization and removal of trade barriers, and further disruptions in
Asian securities markets could result. In addition, certain Asian countries have
managed currencies which are maintained at artificial levels relative to the
U.S. dollar rather than at levels determined by the market. This type of system
can lead to sudden and large adjustments in the currency which, in turn, may
have a disruptive and negative effect on foreign investors. For example, in 1997
the Thai baht lost 46.75% of its value against the U.S. dollar. A number of
Asian companies are highly dependent on foreign loans for their operation. In
1997, several Asian countries were forced to negotiate loans from the
International Monetary Fund and other supranational organizations which impose
strict repayment term schedules and require significant economic and financial
restructuring. There can be no assurance that such restructurings will not have
an adverse effect on individual companies, or securities markets, in which the
Top 50 Asia Portfolio or the Top 50 World Portfolio is invested. The Top 50 Asia
Portfolio may invest in Hong Kong, which reverted to Chinese administration in
1997. Investments in Hong Kong may be subject to expropriation, nationalization
or confiscation, and to the risk that the Hong Kong dollar will be devalued. The
Corporation cannot predict the effects of a possible loss of investor confidence
in the currency or stock market of Hong Kong.
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.
The risks involved in making investments in securities of issuers in emerging
markets have been underscored by recent events. For example, issuers in the Asia
region have experienced currency volatility, political instability and economic
declines in recent months. In response to these declines, Malaysia has recently
enacted currency exchange controls, restricting the repatriation of assets for a
period of one year. Earlier this year, Russia declared a moratorium on repayment
of its own debt, substantially devalued its currency and suspended the
government-
sponsored foreign exchange market for its currency.
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.
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 Contracts and Options on Futures Contracts" in the Statement of
Additional Information.
Geographic Investment Emphasis
From time to time, due to investment opportunities perceived by the Manager to
be attractive, a Portfolio or a Fund may invest a relatively larger portion of
its assets in the issuers of securities domiciled, or principally traded, in one
or more individual countries. In the event that such geographic investment
emphasis occurs, the relevant Portfolio or Fund could be subject to greater risk
due to unanticipated, and negative, economic events and/or market action in such
country or countries.
Local Securities Markets
The German Securities Markets
Equity securities trade on the country's eight regional stock exchanges of which
Frankfurt accounted for approximately 78% of the total volume as of August 31,
1998.
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, 40.83% in 1997, and 3.22% year-to-date as of
August 31, 1998.
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 as of June 30, 1998 represented 24.2% of total trading volume on the
German stock exchanges: Daimler Benz AG with DM 312 billion, Deutsche Bank AG
with DM 242 billion, Siemens AG with DM 190 billion, SAP AG with DM 175 billion,
and VWAG with DM 173 billion.
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 of each Portfolio except the Top 50 US Portfolio. DFM
has retained the services of DBSIM as 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 $672.4 billion and 74,100 employees as of
June 30, 1998, Deutsche Bank AG is one of Europe's largest universal banks. It
is engaged in a wide range of financial services, including retail and
commercial banking, investment banking and insurance. 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, France, Poland and Italy. Together, DFH subsidiaries serve as
manager and/or investment adviser to more than 160 mutual funds, having
aggregate assets under management of more than the equivalent of $77 billion as
of June 30, 1998. DFH and its subsidiaries employ approximately 600
professionals and is one of the largest mutual fund operators 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 June 30, 1998. DFH and its subsidiaries
are known in the financial market as "DWS Group, Investment Group 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; 1997: 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 DBSIM 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 the Top 50 US Portfolio and equal to 0.60% of the average daily
net assets of the 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 Top 50 World Portfolio. Mr. 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 16 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, Investment Group
of Deutsche Bank, supervising funds holding assets under management of DM 13.9
billion ($7.4 billion) as of June 30, 1998.
Klaus Martini and Elisabeth Weisenhorn are 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 Top 50 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 9.0 billion ($5.0
billion) as of June 30, 1998. 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 13 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 18.4 billion ($10.1 billion) as of June 30, 1998. Mr. Martini
and Ms. Weisenhorn are based at DWS Group's office in Frankfurt, Germany.
James E. Moltz, the chief investment officer of Deutsche Bank Securities Inc.,
is the senior portfolio manager of the Top 50 US Portfolio. Mr. Moltz is also
the chief equities strategist of Deutsche Bank Securities 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.
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, except that during the first two years of the
agreement (commencing in 1997), 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 Fund's operation and $125,000 for
the second year will be paid to the Operations Agent and the Administrator.
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, except that during
the first two years of the agreement minimum aggregate fees 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 will be paid to the Operations Agent and the
Administrator.
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.
The Portfolio Trust has entered into an administrative agreement with IBT
(Cayman). As Administrative Agent of the Portfolios, IBT (Cayman) receives a fee
from each Portfolio, which is computed daily and paid monthly at an annual rate
of 0.025% on the first $200 million, 0.02% on the next $800 million and 0.01% on
assets in excess of $1 billion, subject to a minimum of $40,000 during the first
year of the Portfolio's operations, $45,000 in the second year of operations and
$50,000 in the third year.
Distributor
Edgewood serves as principal Distributor for shares of each Fund. Edgewood is
located at 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-5829. 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, Inc. and an
affiliate of Federated Services Company.
Securities laws may require certain financial intermediaries 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 and 1.0% of the net asset
value of Class C 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 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 and Class C Shares are subject to a distribution
plan (the "Distribution Plan") and Class A Shares, Class B Shares and
Class C
Shares are subject to a service plan (the "Service Plan").
Under the Distribution Plan, Class B Shares and Class C Shares will pay a fee to
the Distributor in an amount computed at an annual rate of 0.75% of the average
daily net assets of a Fund represented by Class B Shares and Class C Shares to
finance any activity which is principally intended to result in the sale of
Class B Shares and Class C Shares of a 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' and Class C 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, Class B Shares and Class C Shares a
fee computed at an annual rate of 0.25% of the average daily net assets of each
such class of shares. The services 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 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 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, Class B Shares and Class C 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, 1001 Liberty
Avenue, 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.
Year 2000 Statement
Like other mutual funds and business organizations worldwide, the Funds' service
providers (among them, the Manager, Adviser, Distributor, Administrator,
Custodian and Transfer Agent) must ensure that their computer systems are
adjusted to properly process and calculate date-related information from and
after January 1, 2000. Many software programs and, to a lesser extent, the
computer hardware in use today cannot distinguish the year 2000 from the year
1900. Such a design flaw could have a negative impact in the handling of
securities trades, pricing and accounting services. The Funds and their service
providers are actively working on necessary changes to computer systems to deal
with the year 2000 issue and the Funds' service providers have represented to
the Funds that they believe their systems will be year 2000 compliant when
required. Analysis continues regarding whether the financial impact of
instituting a year 2000 compliant program will have any financial impact on the
Funds' operations.
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,
1999, 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 Shares and Class B Shares,
respectively, of the Top 50 World, and Top 50 Asia and not more than 1.60%,
2.35% and 2.35% of Class A Shares, Class B Shares and Class C Shares,
respectively, of the Top 50 Europe, and not more than 1.50%, 2.25% and 2.25% of
the average annual net assets of Class A Shares, Class B Shares and Class C
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, Class B Shares and Class C Shares
Holders of Class A Shares, Class B Shares and Class C 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, Class B Shares and Class C
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, Class B Shares and Class C 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, Class B
Shares and Class C 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, Class B
Shares and Class C Shares; registration fees paid to the SEC and to state
securities commissions as attributable to holders of Class A Shares, Class B
Shares and Class C Shares; expenses related to administrative personnel and
services as required to support holders of Class A Shares, Class B Shares and
Class C Shares; legal fees relating solely to Class A Shares, Class B Shares or
Class C Shares; and Directors' fees incurred as a result of issues related
solely to Class A Shares, Class B Shares or Class C Shares.
Portfolio Brokerage
Although each Portfolio does not intend to invest for the purpose of seeking
short-term profits, securities in the Portfolios will be sold whenever the
Adviser believes it is appropriate to do so in light of the investment objective
of each Fund and each Portfolio, without regard to the length of time a
particular security may have been held. 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 rate of portfolio turnover of each
Portfolio may exceed that of certain other mutual funds with the same investment
objective. 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. See "Taxes."
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 ("Deutsche Agent") may
act as one of the agents of the Portfolios in the purchase and sale of portfolio
securities, futures contracts or options on futures contracts when, in the
judgment of the Adviser, that Deutsche Agent will be able to obtain a price and
execution at least as favorable as other qualified brokers or futures commission
merchants, as applicable. As one of the primary brokers used by the Portfolios,
Deutsche Bank AG or its affiliates receives brokerage commissions from each
Portfolio, and may receive compensation for executing futures transactions.
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.
From commencement of operations through August 31, 1998, the Top 50 World
Portfolio, Top 50 Europe Portfolio, Top 50 Asia Portfolio, and the Top
50 US
Portfolio paid the following aggregate brokerage commissions, respectively:
$46,910, $39,913, $233,262, and $24,027.
INVESTING IN THE FUNDS
Each Fund offers investors 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 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"
and except for shares purchased without a sales charge that are redeemed within
one year of purchase as described under "Contingent Deferred Sales Charge--Class
A Shares"). 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 C Shares
Class C Shares are sold without an initial sales charge, but a contingent
deferred sales charge of 1.00% will be charged on assets redeemed within the
first full 12 months following purchase.
Other Share Differences
Class B Shares and Class C Shares also bear a fee pursuant to a Distribution
Plan, adopted in accordance with Rule 12b-1 under the 1940 Act, while Class A
Shares do not bear such a fee. Class A Shares, Class B Shares and Class C 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
and Class C 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 in the case of Class B Shares) 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
("NYSE") 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. 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 and may separately charge a
fee for Fund transactions.)
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 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:
<TABLE>
<CAPTION>
Sales Charge Dealer
as a Percentage of Concession as
Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
<S> <C> <C> <C>
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 but less
than $2 million None None 1.00%*
$2 million but less
than $5 million None None 0.80%*
$5 million but less
than $50 million None None 0.50%*
$50 million but less
than $100 million None None 0.25%*
$100 million or more None None 0.15%*
*See "Dealer Concession" below.
</TABLE>
Dealer Concession
Dealer concession will be paid to dealers who initiate and are responsible for
purchases of $1 million or more. The dealer concession may be changed from time
to time and any portion of the sales charge which is not paid to a dealer will
be retained by the Distributor. However, the distributor may offer to pay
dealers up to 100% of the sales charge retained by it. The Distributor, at its
expense, may provide additional promotional incentives to dealers. Such payments
may take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees to attend informational meetings about
the Funds or other special events at recreational type facilities, or items of
material value.
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:
. sales charge waiver;
. quantity discounts and accumulated purchases;
. concurrent purchases;
. signing a 13-month letter of intent;
. using the reinvestment privilege; or
. 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 the National Association of Securities Dealers, Inc.
("NASD") member firms and full-time employees of other financial intermediaries
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 intermediaries
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 acts 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 Bank Securities Inc., Deutsche
Bank Trust Company, or any of their 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. Investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of such investment
advisers or financial planners who place trades for their own accounts if the
accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker or agent;
8. Retirement and deferred compensation plans and trusts used to fund those
plans, including, but not limited to, those defined in section 401(a), 403(b),
or 457 of the Code and "rabbi trusts;"
9. Qualified separate accounts maintained by an insurance company pursuant to
the laws of any state or territory of the United States;
10. 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;
11. 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 the shareholder 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 the shareholder's 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 the shareholder's 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 in escrow (in shares) up to the maximum
sales charge of the total amount intended to be purchased 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 the shareholder's financial
intermediary of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems 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 the investor's 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 and Class C Shares
Class B Shares and Class C Shares are sold at their net asset value next
determined after an order is received. While Class B Shares and Class C Shares
are sold without an initial sales charge, under certain circumstances described
under "Contingent Deferred Sales Charge" a contingent deferred sales charge may
be applied by the Distributor at the time Class B Shares and Class C 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 ("IRS") 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 a 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. (U.S. Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (U.S. 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. (U.S. Eastern time) in order for
shares to be purchased at that day's price. With respect to Top 50 US, orders
must be received and transmitted to the Fund by the close of regular trading on
the NYSE (generally 4:00 p.m. U.S. Eastern time). With respect to Top 50 World,
orders must be received and transmitted to the Fund by the later of: (a) the
close of regular trading on the NYSE (generally 4:00 p.m. U.S. Eastern time), or
(b) the latest close of regular trading on any European securities exchange on
which that Fund's portfolio securities may trade. It is the financial
intermediary's responsibility to transmit orders promptly.
The financial intermediary which maintains investor accounts in Class B Shares
or Class C 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 Number 0110-0143-8; BNF Account Number 570000307; For Credit to: (Fund
Name) (Fund Class); (Fund Number, this number can be found on the account
statement or by contacting the 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 Individual
Retirement Accounts ("IRAs"). 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 other Deutsche Funds. Contact your financial intermediary regarding the
availability of other Class B Shares in the Deutsche Funds. Exchanges are made
at net asset value without being assessed a contingent deferred sales charge on
the exchanged shares. To the extent that a shareholder exchanges shares for
Class B Shares of other Deutsche Funds, the time for which exchanged-from shares
were held will be credited against the time for which the exchanged-for shares
are required to be held for purposes of satisfying the applicable holding period
in respect of the contingent deferred sales charge. For more information, see
"Contingent Deferred Sales Charge."
Class C Shares
Class C shareholders may exchange all or some of their shares for Class C Shares
of the Deutsche Funds. Contact your financial intermediary regarding the
availability of other Class C 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 C 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 a broker or financial intermediary by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to: Deutsche Funds, Inc., c/o Federated Shareholder Services Company, 1099
Hingham Street, Rockland, MA 02370-3317.
Telephone Instructions
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with 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. (U.S. Eastern time), and must be received by the Fund
before that time for shares to be exchanged the same day. With respect to Top 50
US, instructions must be received by the Fund before the close of regular
trading on the NYSE (generally 4:00 p.m. U.S. Eastern time). With respect to Top
50 World, instructions must be received by the Fund by the later of: (a) the
close of regular trading on the NYSE (generally 4:00 p.m. U.S. Eastern time) or
(b) the latest close of regular trading on any European securities exchange on
which that Fund's portfolio securities may trade. 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. 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. (U.S. Eastern time) and must be transmitted by the broker to a
Fund before 5:00 p.m. (U.S. 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. (U.S. Eastern time) in order for
shares to be redeemed at that day's net asset value. With respect to Top 50 US,
requests must be received by the financial intermediary and transmitted to the
Fund before the close of regular trading on the NYSE (generally 4:00 p.m. U.S.
Eastern time). With respect to Top 50 World, requests must be received by the
financial intermediary and transmitted to the Fund by the later of: (a)the close
of regular trading on the NYSE (generally 4:00 p.m. U.S. Eastern time), or (b)
the latest close of regular trading on any European securities exchange on which
that Fund's portfolio securities may trade. 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 the Fund, provided that Fund has
received a properly completed authorization form. These forms can be obtained
from the Transfer Agent. 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 an 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. Wire
transferred redemptions of less than $5,000 may be subject to additional fees.
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 U.S. 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.
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. A
shareholder may apply for participation in this program through such
shareholder's 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 and Class C 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 C Shares
Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those shares will be charged a contingent deferred
sales charge of 1% 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 C Shares of another Fund, at the time of purchase of the Class
C Shares of the exchanged-from Fund) or (ii) the net asset value of the redeemed
shares at the time of redemption.
Class A Shares, Class B Shares and Class C 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 and
Class C 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 and Class C 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 and Class C 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 exchanged-for 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 such shareholder
became a shareholder of the exchanged-from Fund. Moreover, the contingent
deferred sales charge will be eliminated with respect to certain redemptions
(see "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 IRA or other retirement plan
to a shareholder who has attained the age of 70/1//\\2; and (3) 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 such shareholder 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
shareholder'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 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. Backup withholding is not an additional tax; amounts withheld
may be credited against the shareholder's U.S. federal income tax ability.
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. (U.S. Eastern
time) on Monday through Friday, except on the holidays listed under "Net Asset
Value" in the Statement of Additional Information. However, Top 50 World and Top
50 US will compute their respective net asset values at the close of regular
trading on the NYSE (generally 4:00 p.m. U.S. Eastern time), but in the case of
Top 50 World, no earlier than the latest close of regular trading on any
European securities exchange on which that Fund's portfolio securities may
trade.
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 5800 Corporate Drive, Pittsburgh, PA 15237-7010; its toll-free
telephone number is 888-4-DEUTSCHE.
The Articles of Incorporation currently permit the Corporation to issue
17,500,000,000 shares of common stock, par value $0.001 per share, of which
250,000,000 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 10 of the Funds known as Class A Shares and Class
B Shares. Five of the Funds also offer Class C Shares and one Fund offers Class
Y 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. Shareholders in each Fund generally
vote in the aggregate and not by class, unless the law expressly requires
otherwise or the Directors determine that the matter to be voted upon affects
only the interests of shareholders of a particular Fund or class of 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 a 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 laws 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. (U.S. 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. (U.S.
Eastern time) on such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in the Portfolio
effected on such day, and (ii) the denominator of which is the aggregate net
asset value of the Portfolio as of 4:00 p.m. (U.S. Eastern time) on such day
plus or minus, as the case may be, the amount of the net additions to or
withdrawals from the aggregate investments in the Portfolio by all investors in
the Portfolio. The percentage so determined is then applied to determine the
value of the investor's interest in the Portfolio as of 4:00 p.m. (U.S. Eastern
time) on the following business day of the Portfolio. In the case of Top 50
World Portfolio and the Top 50 US Portfolio, the above-referenced calculations
will be determined as of the close of regular trading on the NYSE (generally
4:00 p.m. U.S. Eastern time), but in the case of Top 50 World Portfolio, no
earlier than the latest close of regular trading on any European securities
exchange on which that Portfolio's portfolio securities may trade.
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. Individual shareholders will be subject to
federal income tax on distributions of net capital gains at capital gains rates
if designated as derived from the Fund's capital gains from property held for
more than one year. 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.
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 could 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. Individual shareholders will
be subject to federal income tax on net capital gain at capital gains rates in
respect of shares held for more than one year. Net capital gain of a corporate
shareholder is taxed at the same rate as ordinary income. 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 the 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.
For further information on taxes, see "Taxes" in the Statement of
Additional Information.
ADDITIONAL INFORMATION
Each Fund sends to its shareholders annual and semi-annual 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.
APPENDIX A
Member States of the European Union
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy,
Ireland, Luxembourg, Netherlands, 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, 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,
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.
Czech Republic
Prague
Hungary
Budapest
Poland*
Warsaw
Slovakia
Bratislavia
Switzerland
Basel, Geneva, Zurich
Exchanges in Non-European countries
Argentina
Buenos Aires
Australia
ASX (Sydney, Hobart, Melbourne, Perth)
Brazil
Sao Paulo, Rio de Janiero
Canada
Toronto, Vancouver, Montreal
Chile
Santiago
Hong Kong
Hong Kong Stock Exchange
India**
Mumbai, Calcutta, Delhi, Madras
Indonesia
Jakarta Stock Exchange
Japan
Tokyo, Osaka, Nagoya, Kyoto, Fukuoto, Niigata, Sapporo, Hiroshima
Malaysia
Kuala Lumpur
Mexico
Mexico City
New Zealand
Wellington Christchurch/Invercargill, Auckland
Peru
Lima
* Top 50 World, Top 50 Europe and Top 50 Asia Only
** Top 50 Asia Only
Philippines
Manila
Singapore
Singapore Stock Exchange
South Africa
Johannesburg
South Korea
Seoul
Taiwan
Taipei
Thailand
Bangkok
USA
American Stock Exchange (AMEX), Boston, Chicago, Cincinnati, New York,
New York
Stock Exchange (NYSE), Philadelphia, San Francisco Pacific Stock
Exchange, Los
Angeles Pacific Stock Exchange
Regulated Markets in countries which are not members of 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.)
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.
Deutsche Top 50 World
Deutsche Top 50 Europe
Deutsche Top 50 Asia
Deutsche Top 50 US
Investment Manager
Deutsche Fund Management, Inc.
31 West 52nd Street
New York, NY 10019
Distributor
Edgewood Services, Inc.
5800 Corporate Drive
Pittsburgh, PA 15237-5829
Transfer Agent
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600
Custodian
Investors Bank & Trust Co.
200 Clarendon Street
Boston, MA 02116
GO2179-01 (10/98)
Deutsche Top 50 World (Class A Shares and Class B Shares) Deutsche Top 50 Europe
(Class A Shares, Class B Shares and Class C Shares) Deutsche Top 50 Asia (Class
A Shares and Class B Shares) Deutsche Top 50 US (Class A Shares, Class B Shares
and Class C Shares) Deutsche European Mid-Cap Fund (Class A Shares, Class B
Shares and Class C Shares) Deutsche German Equity Fund (Class A Shares, Class B
Shares and Class C Shares) Deutsche Japanese Equity Fund (Class A Shares and
Class B Shares) Deutsche Global Bond Fund (Class A Shares and Class B Shares)
Deutsche European Bond Fund (Class A Shares, Class B Shares and Class C Shares)
Statement of Additional Information
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 the Deutsche European Bond Fund (the "European Bond Fund") (each a
"Fund" and, collectively, the "Funds") are each a series of the Deutsche Funds,
Inc. (the "Corporation"), a Maryland corporation incorporated on May 22, 1997,
and a management investment company registered under the Investment Company Act
of 1940 (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.
Each Fund offers two classes of shares known as Class A Shares and Class B
Shares. In addition, Top 50 Europe, Top 50 US, European Mid-Cap Fund, German
Equity Fund and the European Bond Fund offer a third class of shares known as
Class C Shares (Class A Shares, Class B Shares and Class C Shares are
individually and collectively referred to as "Shares" as the context may
require). This Statement of Additional Information relates to all 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 the Top 50 US Portfolio. Deutsche Bank Securities Investment
Management Inc. is the investment adviser of the Top 50 US Portfolio (the "DBSIM
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 October 31, 1998, a copy of which may be obtained from the Corporation at
the address noted below.
5800 Corporate Drive
Pittsburgh, PA 15237-7010
The date of this Statement of Additional Information is October 31,
1998
Edgewood Services, Inc., Distributor
G02179-03 (10/98)
<PAGE>
74
Table of Contents
<PAGE>
Investment Objective and Policies 1
Equity Investments 1
Investment Companies 1
Participation Certificates 1
Short-Term Instruments 1
Zero Coupon Obligations 2
Options 2
Foreign Currency Exchange Transactions3
European Currency Unification 3
Futures Contracts and Options on Futures Contracts 4
Risk Management 7
The German Securities Markets 8
Equity Markets 8
Stock Indices 9
Primary Markets 11
Role of Banks in German Capital Markets11
Japanese Equity Securities Markets 12
Investment Restrictions 15
Non-Fundamental Investment Restrictions16
Directors, Trustees, and Officers 18
Directors of the Corporation and Trustees
of the Portfolio Trust 18
Officers of the Corporation and the Portfolio
Trust (unless otherwise noted) 19
Compensation Table--Directors of the Corporation and Trustees of the Portfolio
Trust 20
Fund Ownership 21
Manager 23
Adviser 24
Administrator 25
Operations Agent 26
Administrative Agent 27
Distributor 28
Transfer Agent, Custodian, and Fund
Accountant 29
Independent Accountants 30
Purchase of Shares 30
Conversion to Federal Funds 30
Purchasing Shares with Securities 30
Redemption of Shares 31
Redemption in Kind 31
Elimination of the Contingent Deferred Sales Charge 31
Exchange of Shares 31
Net Asset Value 32
--
Fixed Income Securities 32
Other Securities 32
Performance Data 33
--
Total Return Quotations 33
Yield 34
General 35
Information and Comparisons Relating to the Funds, Secondary Market Trading,
Net Asset Size, Performance and Tax Treatment 35
Economic and Market Information 37
Portfolio Transactions 37
Portfolio Turnover 38
Taxes 39
United States Taxation 39
Description of Shares 42
Additional Information 42
Financial Statements 43
Appendix A 44
Appendix B--Description of Security Ratings 45
<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. 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
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 ("Germany"), the states of Germany, the European
Union, other member states of the Organization for Economic Cooperation and
Development ("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 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.
Transactions 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 the Top 50 US Portfolio, 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.
The staff of the 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) 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. Each Portfolio
may also enter into foreign currency transactions to hedge against a change in
foreign currency exchange rates that would affect the value of existing
investments denominated or principally traded in a foreign currency. Each
Portfolio other than the Provesta Portfolio and the Investa Portfolio may also,
in circumstances where the Adviser 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, a Portfolio would generally enter into a forward contract to
sell the foreign currency in which the investment is denominated in exchange for
U.S. dollars or other currency in which the Adviser desires to protect the value
of the Portfolio.
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
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.
European Currency Unification
Eleven of the fifteen member countries of the European Union ("EU") are about to
adopt a single European currency, the euro. The euro will become legal tender in
these countries effective January 1, 1999. The countries participating in the
European Monetary Union ("EMU") are Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The four EU
members not participating in the EMU are Great Britain, Denmark, Sweden and
Greece. A new European Central Bank ("ECB") has been created to manage the
monetary policy of the new unified region. On the same day, the exchange rates
among the EMU member countries will be permanently fixed. National currencies
will continue to circulate until they are replaced by euro coins and bank notes
by July 1, 2002.
This change is likely to impact significantly the European capital markets in
which the Portfolios of the Top 50 World, Top 50 Europe, European Mid-Cap,
German Equity, Global Bond, and European Bond Funds invest a portion of their
assets. The biggest changes will be the additional risks that the Portfolios
will face in pursuing their investment objectives. All of the risks described
below may increase the volatility of the price of securities that are traded
principally in EMU member countries.
Uncertainties as Unification Nears
Taxes. The U.S. Treasury has determined that euro conversion will not
cause a U.S. taxpayer to realize gain or loss to the extent the taxpayer's
rights and obligations are altered solely by reason of the euro
conversion. However, other changes that may occur contemporaneously to
indices, accrual periods, holiday conventions, or other features may
require the realization of gain or loss by the Portfolios.
Volatility of Currency Exchange Rates. Exchange rates between the U.S.
dollar and European currencies could become more volatile and unstable,
particularly between now and January 1, 1999.
Capital Market Reaction. Uncertainty in the lead-up to introduction of the
euro may lead to a shift by institutional money managers away from European
currencies and into other currencies. This reaction may make markets less liquid
and thus more difficult for the Portfolios to pursue their investment
strategies.
Conversion Costs. European issuers of securities in which the Funds
invest, particularly those that deal in goods and services, may face
substantial costs. These costs may not be accurately predicted by such
issuers and therefore may present another risk factor impacting such
issuers' profitability and creditworthiness.
Uncertainties after Unification of Currency
Contract Continuity. Some financial contracts may become unenforceable
when the currencies are unified. These financial contracts may include
bank loan agreements, master agreements for swaps and other derivatives,
master agreements for foreign exchange and currency option transactions
and debt securities. The risk of unenforceability may arise in a number of
ways. For example, a contract used to hedge against exchange rate
volatility between two EU currencies will become "fixed," rather than
"variable," as part of the conversion since the currencies have, in
effect, disappeared for exchange purposes.
The European Council has enacted laws and regulations designed to ensure
that financial contracts will continue to be enforceable after conversion.
There is no guarantee, however, that these laws will be completely
effective in preventing disputes from arising. Disputes and litigation
over these contract issues could negatively impact the Portfolios'
portfolio holdings and may create uncertainties in the valuation of
financial contracts the Portfolios hold.
ECB Policymaking. As the ECB and European market participants search for a
common understanding of policy targets and instruments, interest rates and
exchange rates could become more volatile.
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
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 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.
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.
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.
<PAGE>
The German Securities Markets
Equity Markets
Equity securities trade on the country's eight regional stock exchanges
(Frankfurt, Dusseldorf, Munich, Hamburg, Berlin, Stuttgart, Hannover and
Bremen), of which Frankfurt accounted for approximately 78% of the total volume
as of August 31, 1998. 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.
Market Capitalization and Trading Volume
of Equity Securities on German Stock Exchanges(1)
(in billions)
MARKET TRADING VOLUME FOR
CAPITALIZATION AS OF THE YEAR ENDED
DECEMBER 31, 1997 (2) DECEMBER 31, 1997 (2)
1992 $348.14 DM 561.89 $ 876.8 DM 1,415.2
1993 463.48 800.10 1,150.3 1,985.8
1994 499.25 773.88 1,302.9 2,017.9
1995 544.89 781.10 1,146.8 1,643.9
1996 635.95 988.77 1,487.6 2,312.9
1997 825.23 1,483.85 2,067.4 3,717.4
1998* 981.73 1,731.28 1,932.01 3,406.83
(1) Excluding stocks of foreign-domiciled companies and investment
companies.
(2)U.S. dollar equivalents calculated at year-end exchange rates. The figures
for 1992 through 1994 include warrants.
* Year-to-date as of August 31, 1998.
Sources: Deutsche Borse AG and the Deutsche Bundesbank.
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 (Neuer Markt) 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 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 approximately 70% of the
total equity capital of German exchange-listed companies. Trading in these
shares accounts for approximately 74% 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.
ANNUAL TOTAL RETURN(1)
1992 1993 1994 1995 1996 1997 1998*
DAX (2.09)% 46.71% (7.06)% 6.99% 28.17% 47.11% 13.75%
CDAX (6.39)% 44.56% (5.83)% 4.75% 22.14% 40.83% 12.32%
Dollar-adjusted DAX(8.33)% 36.85% 4.12% 15.60% 18.17% 27.63% 17.14%
Dollar-adjusted CDAX(12.36)%34.85% 5.50% 13.17% 12.61% 22.18% 15.68%
(1) Based on U.S. dollar returns.
* Year-to-date as of August 31, 1998.
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 as of August 31, 1998 represented 24.2% of total trading volume on
the German stock exchanges: Daimler Benz AG with DM 312 billion, Deutsche Bank
AG with DM 242 billion, Siemens AG with DM 190 billion, SAP AG with DM 175
billion, and VW AG with DM 173 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.
INDUSTRY COMPOSITION OF DAX(1) AND CDAX(2)
INDEX AS OF AUGUST 31, 1998
DAX CDAX
Automobile 13.33% 4.85%
Construction -- 9.43%
Chemicals 20% 8.63%
Mergers -- 5.93%
Electronics Industry 6.67% 6.20%
Brewery -- 5.39%
Hypo Banks -- 1.62%
Banks 13.33% --
Credit Banks -- 4.31%
Traffic -- 1.08%
Mechanical Engineering 10% 14.02%
Paper -- 2.43%
Utilities 13.33% 5.12%
Steel and Raw Materials 6.67% 2.70%
Textile -- 4.85%
Insurance 6.67% 7.01%
Consumer Goods 10% 16.44%
Total 100.00% 100.00%
(1)The DAX Index is comprised of 30 stocks representing approximately 75% of
the market capitalization of the Frankfurt stock exchange.
(2) The CDAX Index is comprised of 371 stocks (subject to adjustments).
<PAGE>
Primary Markets
The amount of funds raised in equity financings in 1998 as of August 31, was
equal to DM 2,380 million while the number of financings was 34. 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 1997 1998*
Value 804 833 1,246 6,495 24,807 4,961 2,380
*As of August 31, 1998
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 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 five 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 a Portfolio 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 rule, the Portfolios may purchase securities
in offerings in which Deutsche Bank or one of its affiliates is the principal
underwriter, subject to certain conditions. Directly and through its various
wholly-owned affiliates abroad, Deutsche Bank is a major player in the Eurobond
market. Although the Portfolio 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 by 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
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 NSA and TOPIX for 1987 through August 31,
1998 and yen and dollar-adjusted total return information for those time
periods.
NSA TOPIX
TOTAL RETURN(1) TOTAL RETURN(1)
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 38,915.87 29.04% 12.21% 2,881.37 22.25% 6.31%
1990 23,848.71 -38.72% -35.08% 1,733.83 -39.83% -36.26%
1991 22,983.77 -3.63% 4.75% 1,714.68 -1.10% 7.49%
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 19,723.06 13.24% 27.00% 1,559.09 8.32% 21.48%
1995 19,868.15 0.74% -2.85% 1,577.70 1.19% -2.41%
1996 19,361.35 -2.55% -13.06% 1,470.94 -6.77% -16.83%
1997 15,258.74 -21.19% -29.65% 1,175.03 -20.12% -28.69%
1998* 14,107.89 -7.54% -15.37% 1,106.49 -5.83% -11.78%
(1) Total return is the percent change in the index from the start of the
year to the end.
* Year-to-date as of August 31, 1998.
Sources: Tokyo Stock Exchange, Annual Securities Statistics (1998); Monthly
Statistics Report (Dec. 1987, 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995,
1996, 1997, Aug. 1998).
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
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.
Further, recent events, not only in Japan but in other countries in the Asian
region, as well as in Russia, may negatively impact the Funds. Such events
include currency volatility and depreciation, high interest rates, banking
sector crises, market volatility, political instability and declining asset
values. Taken together, these and other factors are likely to: (1) have a
material adverse effect on economic growth and (2) increase volatility in the
prices at which securities and other financial instruments are traded. As a
result, there can be no assurance that the political and economic developments
in this and other parts of the world will not have a material adverse effect on
the net asset value of the Funds investing a significant portion of their assets
in the securities of issuers domiciled in, or deriving a large percentage of
their revenues from, such countries.
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
1997, and year-to-date as of August 31, 1998. Trading on the TSE represented
over 89% of trading volume in each year.
VOLUME VALUE
YEAR (MILLIONS OF SHARES) ((Y) BILS.)
1989 256,296 386,395
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
1997 130,657 151,450
1998* 92,959 83.761
*Year-to-date as of August 31, 1998.
Source: Tokyo Stock Exchange, Fact Book 1998.
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
August 31, 1998, 1,333 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 August 31, 1998, 486 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.
The 20 leading Japanese companies on the TSE, by market value, represented 31.3%
of the total market value of the TSE at August 31, 1998. As of August 31, 1998,
three industrial groups accounted for approximately 67% of the total market
value of the TSE: banks, 50%; chemicals, 9%; and retail trade, 8%. The following
table sets forth the number of companies listed on the TSE and market value by
industrial group for year-end 1998.
Number of Market Values
Companies ((Y) bils.)
Fishery, Agriculture & Forestry 7 77
Mining 8 74
Construction 115 1,029
Foods 63 1,053
Textiles & Apparels 49 642
Pulp & Paper 18 266
Chemicals 103 18,308
Pharmaceutical 34 9,744
Oil & Coal Products 10 221
Rubber Products 10 160
Glass & Ceramics Products 26 428
Iron & Steel 38 1,097
Nonferrous Metals 25 419
Metal Products 31 199
Machinery 103 1,204
Electric Appliances 135 2,522
Transportation Equipment 61 2,053
Precision Instruments 19 122
Other Products 38 373
Electric Power & Gas 14 1,989
Land Transportation 31 938
Marine Transportation 13 288
Air Transportation 4 175
Warehousing & Harbor
Transportation Services 12 52
Communication 4 377
Wholesale Trade 81 15,400
Retail Trade 74 16,945
Banks 98 100,442
Securities 18 9,765
Insurance 14 7,573
Other Financing Businesses 17 4,558
Real Estate 21 466
Services 39 517
Total 1,333 199,476
Manufacturing 763 38,811
Non-Manufacturing 570 160,665
Total 1,333 199,476
Source: Tokyo Stock Exchange, Fact Book 1998.
The amount of funds raised in equity financings by all the companies listed on
all eight Japanese stock exchanges year-to-date as of August 31, 1998, as
compared to calendar year 1997, decreased by 264.61 billion yen to 673.39
billion yen while the number of financings decreased by 28 to 114. The following
table sets forth the number of equity financings by companies listed on all
eight of the Japanese stock exchanges and the amount raised for each of 1992
through 1997, and year-to-date as of August 31, 1998.
<TABLE>
<CAPTION>
Rights Public Private Exercise
Offerings Offerings Placements of Warrants Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number Amount Number Amount Number Amount Number Amount Amount
of Raised of Raised of Raised 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
1993 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
1997 9 73 26 128 19 369 88 368 938
1998* 1 0.385 10 279 17 312 86 82 673.39
</TABLE>
* Year-to-date as of August 31, 1998.
Source: Tokyo Stock Exchange, Fact Book 1998.
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. This
limitation shall not apply to securities 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 interests in the Portfolio or Fund Sharess 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 Portfolio.
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may be
deemed to be an underwriter under the Securities Act of 1933 (the "1933
Act").
5. Purchase or sell real estate except that a Portfolio 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
Portfolio as a result of the ownership of securities.
6. Purchase or sell commodities or commodity contracts, except the Portfolio 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 Portfolio may (1) lend portfolio securities with
a value not exceeding one-third of the Portfolio'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 non-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):
(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 Portfolio from acquiring securities of
other investment companies if as a result (i) more than 5% of the value of a
Portfolio'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 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 a Portfolio 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 the 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 Germany, the
states of Germany, a member state of the EU, a state party to the Convention
on the European Economic Area ("CEEA"), a member state of the 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 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 based on
classifications used by 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.
<PAGE>
Directors, Trustees, and Officers
The Directors of the Corporation, Trustees of the Portfolio Trust and
executive officers of the Corporation, and their principal occupations during
the past five years (although their titles may have varied during the period),
business addresses, and birthdates are:
Directors of the Corporation and Trustees of the Portfolio Trust
Richard R. Burt
Chairman of IEP Advisors, Inc. Chairman of the Board of Weirton Steel. Member of
the Board of Hollinger International. Member of the Board of Archer Daniels
Midland. Member of the Board of Homestake Mining. Director of the Mitchell
Hutchins family of funds. Member of the Textron Corporation International
Advisory Council. Partner with McKinsey & Company (1991-1994). Previously U.S.
Chief Negotiator in the Strategic Arms Reduction Talks (START) with the former
Soviet Union, and prior to that was U.S. Ambassador to the Federal Republic of
Germany (1985-1991). Amb. Burt's address is IEP Advisors, LLP, 1275 Pennsylvania
Avenue NW, 10th Floor, Washington, D.C. 20004, and his birthdate is February 3,
1947.
Edward C. Schmults
Member of the Board of Directors of Green Point Financial Corp. Chairman of the
Board of Trustees of The Edna McConnell Clark Foundation. Director of The
Germany Fund, Inc. and The Central European Equity Fund, Inc. Senior Vice
President - External Affairs and General Counsel of GTE Corporation (prior to
1994). Mr. Schmults' address is Rural Route One, Box 788, Cuttingsville, VT
05738, and his birthdate is February 6, 1931.
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 4455 E. Camelback Road, Suite 261 E., Phoenix, AZ 85018, and his
birthdate is January 29, 1940.
Werner Walbroel
President and Chief Executive of the German American Chamber of Commerce, Inc.
President of European American Chamber of Commerce. 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, and his birthdate is August 28,
1937.
G. Richard Stamberger*
Former Managing Director of Deutsche Bank Securities Inc. Managing Director of
C.J. Lawrence, Inc. (prior to 1993). Mr. Stamberger's address is 921 Fox Hill
Lane, Scotch Plains, NJ 07076, and his birthdate is October 24, 1947.
<PAGE>
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,
and his birthdate is May 28, 1943.
* Is an "interested person" of the Corporation or the Portfolio Trust as that
term is defined in the 1940 Act.
Officers of the Corporation and the Portfolio Trust (unless otherwise noted)
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.
Mr. Lee's birthdate is November 20, 1947.
Joseph Cheung
Treasurer
Vice President (since 1996), Assistant Vice President (1994-1996) and Associate
(1991-1994) of Deutsche Bank Securities Inc. Treasurer of the Country Baskets SM
Index Fund, Inc. (1996-1997). Chief Financial Officer and Treasurer of The
Germany Fund, Inc., The Central European Equity Fund, Inc. and The New Germany
Fund, Inc. (since 1997). Assistant Secretary and Assistant Treasurer of The
Germany Fund, Inc., The Central European Equity Fund, Inc. and The New Germany
Fund, Inc. (1993-1997). Mr. Cheung's birthdate is August 30, 1958.
Robert R. Gambee
Secretary
Director, Deutsche Bank Securities Inc. (since 1992). Chief Operating Officer
and Secretary of The Germany Fund, Inc., The Central European Equity Fund, Inc.,
and The New Germany Fund, Inc. (since 1997). Secretary and Treasurer of The
Germany Fund, Inc. (1986-1997), The New Germany Fund, Inc. (1990-1997) and The
Central European Equity Fund, Inc. (1990-1997). First Vice President, Deutsche
Bank Securities, Inc. (1985-1991). Corporate Secretary, DB New World Fund
Limited. Secretary, Deutsche Bank Investment Management, Inc. Mr. Gambee's
birthdate is August 26, 1942.
Laura Weber
Assistant Secretary and Assistant Treasurer
Associate of Deutsche Bank Securities Inc. (since June 1997). Assistant
Secretary and Assistant Treasurer of The Germany Fund, Inc., The New Germany
Fund, Inc., and The Central European Equity Fund, Inc. 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. Ms. Weber's birthdate is July 13, 1971.
Holger Naumann
Assistant Treasurer of the Portfolio Trust
Director of DFM (since January 1997). Head of Participations at DWS Deutsche
Gesellschaft fuer Wertpapiersparen mbH (since December 1995). Group Strategy
Department at Deutsche Bank AG (1992-1995). Mr. Naumann's address is DWS
Deutsche Gesellschaft fuer Wertpapiersparen mbH, Gruneburgweg 113-115, 60323
Frankfurt am Main, Germany, and his birthdate is May 17, 1962.
Joseph Bernhart
Assistant Treasurer of the Portfolio Trust
Participations Department at DWS Deutsche Gesellschaft fuer Wertpapiersparen mbH
(since July 1997). DIH Deutsche Industrie-Holding GmbH & Co. KG (affiliate to
Deutsche Bank AG)( 1995 - 1997). Trainee, Deutsche Bank AG (1994-1995). Mr.
Bernhart's address is DWS Deutsche Gesellschaft fuer Wertpapiersparen mbH,
Gruneburgweg 113-115, 60323 Frankfurt am Main, Germany, and his birthdate is May
7, 1966.
Unless otherwise noted, the address of each officer of the Corporation is 31
West 52nd Street, New York, NY 10019.
Compensation Table--Directors of the Corporation and Trustees of the Portfolio
Trust
Aggregate Total
Compensation Compensation
from the from the Corporation,
Corporation the Portfolio Trust,
and the and the
Portfolio Trust * Fund Complex**
Edward C. Schmults,
Director and Trustee $1,000 $45,750
Robert H. Wadsworth,
Director and Trustee $1,000 $63,000
Werner Walbroel,
Director and Trustee $1,000 $47,250
G. Richard Stamberger,
Director and Trustee None None
Christian Strenger,
Director and Trustee None None
Richard R. Burt,#
Director and Trustee None None
* Information is furnished for the fiscal year ended August 31, 1998.
** 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.
Information is furnished for the period from May 22, 1997, organization date
of the Corporation and the Portfolio Trust, to August 31, 1998.
# Amb. Richard R. Burt was elected as a Director of the Corporation, and a
Trustee of the Portfolio Trust, on October 9, 1998.
The non-interested Directors of the Corporation receive a base annual fee of
$5,000 and $500 per meeting attended, plus expenses, which are paid jointly by
all series of the Corporation and allocated among the series based upon their
respective net assets.
The non-interested Trustees of the Portfolio Trust receive a base annual fee of
$5,000 and $500 per meeting attended, plus expenses, which are paid jointly by
all series of the Portfolio Trust and allocated among the series based upon
their respective net assets.
Neither the Corporation nor the Portfolio Trust requires employees, and none of
the Corporation's officers devotes full time to the affairs of the Corporation
or receive any compensation from a Fund or a Portfolio.
Fund Ownership
Shareholders owning 25% or more of the Funds may, for certain purposes, be
deemed to control the Funds, and therefore, may be able to affect the outcome of
certain matters presented for a vote of shareholders.
As of October 9, 1998, the Directors of the Corporation, Trustees of the
Portfolio Trust and Officers of the Corporation and the Portfolio Trust as a
group of record owned approximately 3,668 (23.51%) Class A Shares of the Top 50
World Fund, no outstanding Class B Shares of the Top 50 World Fund, and no
outstanding Shares of the Top 50 Europe Fund, Top 50 Asia Fund, Top 50 US Fund,
European Mid-Cap Fund, German Equity Fund, Japanese Equity Fund, Global Bond
Fund, and European Bond Fund.
As of October 9, 1998, Directors of the Corporation, Trustees of the Portfolio
Trust and Officers of the Corporation and the Portfolio Trust as a group owned
none of the beneficial interests in any of the Portfolio Trust. As of the same
date, no person owned 5% or more of the voting stock of any Portfolio except
that the Corporation owned 100% of the outstanding beneficial interests in each
Portfolio.
As of October 9, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A Shares of the Top 50 World Fund: Merrill Lynch Pierce
Fenner & Smith (as record holder for its clients), Jacksonville, FL, owned
approximately 4,431 Shares (28.39%); Investors Bank & Trust Company, as
custodian for the IRA of a U.S. citizen, Boston, MA, owned approximately 3,668
Shares (23.51%); individuals residing in Belle Harbor, NY, owned approximately
1,257 Shares (8.06%); an individual residing in New York, NY, owned
approximately 1,088 Shares (6.97%); Federated Administrative Services,
Pittsburgh, PA, owned approximately 888 Shares (5.70%); and an individual
residing in New York, NY, owned approximately 831 Shares (5.33%).
As of October 9, 1998, the following shareholder of record owned 5% or more of
the outstanding Class B Shares of the Top 50 World Fund: Merrill Lynch Pierce
Fenner & Smith (as record holder for its clients), Jacksonville, FL, owned
approximately 8,586 Shares (99.87%).
As of October 9, 1998, the following shareholder of record owned 5% or more of
the outstanding Class A Shares of the Top 50 Europe Fund: Merrill Lynch Pierce
Fenner & Smith (as record holder for its clients), Jacksonville, FL, owned
approximately 78,267 Shares (71.37%).
As of October 9, 1998, the following shareholder of record owned 5% or more of
the outstanding Class B Shares of the Top 50 Europe Fund: Merrill Lynch Pierce
Fenner & Smith (as record holder for its clients), Jacksonville, FL, owned
approximately 266,351 Shares (89.38%).
As of October 9, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A Shares of the Top 50 Asia Fund: Fidelity Investments
Institutional Operations Co. Inc. (as record holder for its clients), Covington,
KY, owned approximately 3,723 Shares (41.91%); Merrill Lynch Pierce Fenner &
Smith (as record holder for its clients), Jacksonville, FL, owned approximately
1,161 Shares (13.07%); Federated Administrative Services, Pittsburgh, PA, owned
approximately 888 Shares (10.01%); and an individual residing in New York, NY,
owned approximately 625 Shares (7.04%).
As of October 9, 1998, the following shareholders of record owned 5% or more of
the outstanding Class B Shares of the Top 50 Asia Fund: Merrill Lynch Pierce
Fenner & Smith (as record holder for its clients), Jacksonville, FL, owned
approximately 10,827 Shares (68.50%); and Fox & Co., New York, NY, owned
approximately 4,965 Shares (31.41%).
As of October 9, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A Shares of the Top 50 US Fund: Deutsche Bank Securities
Inc. (as record holder for its clients), New York, NY, owned approximately
70,630 Shares (47.45%); an individual residing in San Juan, PR, owned
approximately 17,921 Shares (12.04%); and Miter & Co., Milwaukee, WI, owned
approximately 17,618 Shares (11.84%).
As of October 9, 1998, the following shareholders of record owned 5% or more of
the outstanding Class B Shares of the Top 50 US Fund: Parker Hunter Inc. (as
record holder for its clients), New Castle, PA, owned approximately 31,673
Shares (65.96%); Parker Hunter Inc. (as record holder for its clients),
Canfield, OH, owned approximately 9,962 Shares (20.75%); and Parker Hunter Inc.
(as record holder for its clients), Warren, OH, owned approximately 4,707 Shares
(9.80%).
As of October 9, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A Shares of the European Mid-Cap Fund: Merrill Lynch
Pierce Fenner & Smith (as record holder for its clients), Jacksonville, FL,
owned approximately 114,480 Shares (63.61%); an individual in San Juan, PR,
owned approximately 17,041 Shares (9.47%); and Charles Schwab & Co. Inc., San
Francisco, CA, owned approximately 12,253 Shares (6.81%).
As of October 9, 1998, the following shareholder of record owned 5% or more of
the outstanding Class B Shares of the European Mid-Cap Fund: Merrill Lynch
Pierce Fenner & Smith (as record holder for its clients), Jacksonville, FL,
owned approximately 309,220 Shares (85.60%).
As of October 9, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A Shares of the German Equity Fund: Merrill Lynch Pierce
Fenner & Smith (as record holder for its clients), Jacksonville, FL, owned
approximately 22,304 Shares (53.04%); and Fidelity Investments Institutional
Operations Co. Inc. (as record holder for its clients), Covington, KY, owned
approximately 4,964 Shares (11.81%).
As of October 9, 1998, the following shareholders of record owned 5% or more of
the outstanding Class B Shares of the German Equity Fund: Merrill Lynch Pierce
Fenner & Smith (as record holder for its clients), Jacksonville, FL, owned
approximately 16,491 Shares (82.26%); and Investors Bank & Trust Co., as
custodian for the IRA of a U.S. citizen, Boston, MA, owned 2,239 Shares
(11.17%).
As of October 9, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A Shares of the Japanese Equity Fund: Federated
Administrative Services, Pittsburgh, PA, owned approximately 888 Shares
(58.56%); individuals residing in Middletown, NJ, owned approximately 303 Shares
(20.01%); an individual residing in Summit, NJ, owned approximately 89 Shares
(5.90%); an individual residing in New York, NY, owned approximately 78 Shares
(5.14%); and an individual residing in New Canaan, CT, owned approximately 78
Shares (5.14%).
As of October 9, 1998, the following shareholder of record owned 5% or more of
the outstanding Class B Shares of the Japanese Equity Fund: Merrill Lynch Pierce
Fenner & Smith (as record holder for its clients), Jacksonville, FL, owned
approximately 33,323 Shares (100%).
As of October 9, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A Shares of the Global Bond Fund: individuals residing in
Colts Neck, NJ, owned approximately 2,250 Shares (31.91%); individuals residing
in Belle Harbor, NY, owned approximately 1,990 Shares (28.24%); an individual
residing in New York, NY, owned approximately 952 Shares (13.51%); Federated
Administrative Services, Pittsburgh, PA, owned approximately 902 Shares
(12.79%); and an individual residing in Fayeteville, NY, owned approximately 369
Shares (5.24%).
As of October 9, 1998, the following shareholder of record owned 5% or more of
the outstanding Class B Shares of the Global Bond Fund: Merrill Lynch Pierce
Fenner & Smith (as record holder for its clients), Jacksonville, FL, owned
approximately 618 Shares (100%).
As of October 9, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A Shares of the European Bond Fund: Fidelity Investments
Institutional Operations Co. Inc. (as record holder for its clients), Covington,
KY, owned approximately 2,467 Shares (39.54%); Merrill Lynch Pierce Fenner &
Smith (as record holder for its clients), Jacksonville, FL, owned approximately
1,625 Shares (26.05%); Federated Administrative Services, Pittsburgh, PA, owned
approximately 899 Shares (14.41%); an individual residing in Medfield, MA, owned
approximately 386 Shares (6.19%); an individual residing in Fayeteville, NY,
owned approximately 358 Shares (5.75%); and individuals residing in Freeport,
NY, owned approximately 350 Shares (5.61%).
As of October 9, 1998, the following shareholders of record owned 5% or more of
the outstanding Class B Shares of the European Bond Fund: Merrill Lynch Pierce
Fenner & Smith (as record holder for its clients), Jacksonville, FL, owned
approximately 5,850 Shares (87.66%); and an individual residing in New York, NY,
owned approximately 811 Shares (12.16%).
The identities of the above-named shareholders can be obtained by contacting the
Funds' transfer agent, Federated Shareholder Services Company, Federated
Investors
Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
Manager
The investment manager to each Portfolio is DFM, an indirect subsidiary of
Deutsche Bank, 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 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."
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 Portfolio, Top 50 Europe
Portfolio 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.
<PAGE>
From the Portfolios' commencement of operations through August 31, 1998, DFM
earned management fees as follows:
COMMENCEMENT
PORTFOLIO OF OPERATIONS MANAGEMENT FEE
Top 50 World Portfolio 10/2/97 $ 76,939
Top 50 Europe Portfolio 10/2/97 87,638
Top 50 Asia Portfolio 10/14/97 189,797
Top 50 US Portfolio 10/2/97 70,740
Provesta Portfolio 10/17/97 31,021
Investa Portfolio 10/17/97 21,527
Japanese Equity Portfolio10/20/97 11,948
Global Bond Portfolio 10/15/97 20,623
European Bond Portfolio 10/17/97 21,836
The Glass-Steagall Act and other applicable laws generally prohibit banks
(including foreign banks having U.S. operations, such as Deutsche Bank) 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 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 the DWS Adviser and with
respect to Top 50 US Portfolio with the DBSIM Adviser. 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 DBSIM 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 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.
<PAGE>
From the Portfolios' commencement of operations through August 31, 1998, the
Adviser earned advisory fees as follows:
COMMENCEMENT
PORTFOLIO OF OPERATIONS ADVISORY FEE
Top 50 World Portfolio 10/2/97 $ 57,704
Top 50 Europe Portfolio 10/2/97 65,728
Top 50 Asia Portfolio 10/14/97 142,347
Top 50 US Portfolio 10/2/97 49,934
Provesta Portfolio 10/17/97 21,897
Investa Portfolio 10/17/97 15,195
Japanese Equity Portfolio10/20/97 8,433
Global Bond Portfolio 10/15/97 13,748
European Bond Portfolio 10/17/97 14,557
The Advisory Agreement is dated July 28, 1997, and will remain in effect until
July 28, 1999, and from year to year thereafter, but only so long as the
agreement is specifically approved at least annually (i) by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the related Portfolio, or by the Portfolio Trust's Trustees, and
(ii) by a vote of a majority of the Trustees of the Portfolio Trust who are not
parties to such Advisory Agreement or "interested persons" (as defined in the
1940 Act) of the Portfolio Trust, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement was initially
approved at a meeting held on July 28, 1997. The Advisory Agreement will
terminate with respect to a Portfolio automatically if assigned or if the
Management Agreement is terminated with respect to that Portfolio and is
terminable at any time without penalty by a vote of a majority of the Portfolio
Trust's Trustees, or by a vote of the holders of a majority of the related
Portfolio's outstanding voting securities, on 60 days' written notice to the
relevant Adviser and by each Adviser on 90 days' written notice to the Manager
and the Portfolio Trust. The Advisory Agreement provides that neither the
Adviser nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss or expense in connection with the matters in which the
agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its obligations and duties
under the agreement. See "Additional Information."
For each Portfolio advised by the DWS Adviser there is a corresponding DWS
Fund, as follows (having launch dates and net assets as of August 31, 1998, as
indicated): Provesta Portfolio--Provesta (November 1985, $1.10 billion), Investa
Portfolio--Investa (December 1956, $2.80 billion), Japanese Equity
Portfolio--DWS-Japan Fonds (April 1992, $326 million), Global Bond
Portfolio--Inter Renta (July 1969, $10.84 billion), European Bond
Portfolio--Eurorenta (November 1987, $2.46 billion), Top 50 World Portfolio--Top
50 Welt (January 1997, $2.92 billion), Top 50 Europe Portfolio--Europa (October
1995, $1.85 billion), and Top 50 Asia Portfolio--Top 50 Asian (April 1996, $387
million).
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
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 willful 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 receives a minimum
fee of $75,000 per Fund annually, except that during the first two years of the
agreement 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 Fund's operation and $125,000 for the second year will be paid to
the Operations Agent (as defined below) and the Administrator.
From the Funds' commencement of operations through August 31, 1998, the
Administrator earned administrative fees as follows:
COMMENCEMENT
FUNDS OF OPERATIONS ADMINISTRATIVE FEE
Top 50 World 10/2/97 $ 226
Top 50 Europe 10/2/97 700
Top 50 Asia 10/14/97 197
Top 50 US 10/2/97 1,064
European Mid-Cap Fund 10/17/97 941
German Equity Fund 10/17/97 276
Japanese Equity Fund 10/20/97 182
Global Bond Fund 10/15/97 196
European Bond Fund 10/17/97 183
Operations Agent
Under an operations agency agreement with the Portfolio Trust ("Operations
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) 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.
The Operations Agency Agreement between the Portfolio Trust and Federated
Services Company (dated July 28, 1997) with respect to each Portfolio has an
initial term of three years. Thereafter, the Operations Agency Agreement will
remain in effect until terminated by either party thereto. The agreement is
terminable by the Portfolio Trust at any time after the initial term without
penalty by a vote of a majority of the Trustees of the Portfolio Trust, or by a
vote of the holders of a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the Portfolio Trust (see "Additional Information").
The Operations Agency Agreement is terminable by the Trustees of the Portfolio
Trust or investors of the Portfolio on 60 days' written notice to Federated
Services Company. The agreement is terminable by Federated Services Company on
90 days' written notice to the Portfolio Trust. The Operations Agency 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 willful
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
receives a minimum fee of $60,000 per Portfolio annually, except that during the
first two years of the agreement minimum aggregate fees 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, will be paid to the Operations Agent and the
Administrator.
From the Portfolios' commencement of operations through August 31, 1998, the
Operations Agent earned operations agency fees as follows:
Commencement Operations
Portfolio of Operations Agent Fee
Top 50 World Portfolio 10/2/97 $67,036
Top 50 Europe Portfolio 10/2/97 66,445
Top 50 Asia Portfolio 10/14/97 61,738
Top 50 US Portfolio 10/2/97 66,335
Provesta Portfolio 10/17/97 64,498
Investa Portfolio 10/17/97 65,197
Japanese Equity Portfolio10/20/97 65,332
Global Bond Portfolio 10/15/97 65,603
European Bond Portfolio 10/17/97 65,157
Administrative Agent
Under an administration agreement with the Portfolio Trust ("Administration
Agreement"), IBT Trust Company (Cayman) Ltd. ("IBT (Cayman)") serves as
administrative agent to the 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) 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 an initial term of three
years. Thereafter, the Administration Agreement will remain in effect until
terminated by either party thereto. The agreement is terminable by the Portfolio
Trust at any time after the initial term without penalty by a vote of a majority
of the Trustees of the Portfolio Trust, or by a vote of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Portfolio Trust (see "Additional Information"). The Administration Agreement
is terminable by the Trustees of the Portfolio Trust or investors of the
Portfolio on 60 days' written notice to IBT (Cayman). The agreement is
terminable by IBT (Cayman) on 90 days' written notice to the Portfolio. The
Administration Agreement provides that neither IBT (Cayman) nor its personnel
shall be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in its services, except
for willful misfeasance, bad faith or gross negligence or reckless disregard of
its obligations and duties under the Agreement.
The Portfolio Trust has entered into an administrative agreement with IBT
(Cayman). As Administrative Agent of the Portfolios, IBT (Cayman) receives a fee
from each Portfolio, which is computed daily and paid monthly at an annual rate
of 0.025% on the first $200 million, 0.02% on the next $800 million and 0.01% on
assets in excess of $1 billion, subject to a minimum of $40,000 during the first
year of the Portfolio's operations, $45,000 in the second year of operations and
$50,000 in the third year. From the Portfolios' commencement of operations
through August 31, 1998, the Administrative Agent earned feesAdministrative
Agency fees as follows:
COMMENCEMENT ADMINISTRATIVE
PORTFOLIO OF OPERATIONS AGENT FEE
Top 50 World Portfolio 10/2/97 $36,556
Top 50 Europe Portfolio 10/2/97 36,556
Top 50 Asia Portfolio 10/14/97 35,112
Top 50 US Portfolio 10/2/97 36,556
Provesta Portfolio 10/17/97 34,889
Investa Portfolio 10/17/97 34,889
Japanese Equity Portfolio10/20/97 34,445
Global Bond Portfolio 10/15/97 35,111
European Bond Portfolio 10/17/97 34,889
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 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
(and amended on July 13, 1998), Class B Shares and Class C Shares are subject to
a distribution plan (the "Distribution Plan") and Class A Shares, Class B Shares
and Class C Shares are subject to a service plan (the "Service Plan").
Under the Distribution Plan, Class B Shares and Class C Shares will pay a fee to
the Distributor in an amount computed at an annual rate of 0.75% of the average
daily net assets of the Fund represented by Class B Shares and Class C Shares to
finance any activity which is principally intended to result in the sale of
Class B Shares and Class C 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.
From the Funds' commencement of operations through August 31, 1998, the
Distributor earned service fees as follows:
COMMENCEMENT
FUNDS OF OPERATIONS SERVICE FEE
Top 50 World 10/2/97 $ 226
Top 50 Europe 10/2/97 2,049
Top 50 Asia 10/14/97 112
Top 50 US 10/2/97 3,444
European Mid-Cap Fund 10/17/97 2,973
German Equity Fund 10/17/97 415
Japanese Equity Fund 10/20/97 61
Global Bond Fund 10/15/97 113
European Bond Fund 10/17/97 60
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 have 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 meetings held on July 28, 1997 and July 13, 1998. The
Distribution Plan is separately terminable with respect to the Class B Shares or
Class C 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 respective Class B
Shares or Class C Shares of that Fund.
Transfer Agent, Custodian, and Fund Accountant
Federated Shareholder Services Company, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, serves as the transfer agent and dividend
disbursing agent for each Fund ("Transfer Agent" and "Dividend Disbursing
Agent"). 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 ("IBT"), 200 Clarendon Street, Boston, MA 02116 acts as the custodian of
each Fund's and each Portfolio's assets ("Custodians"). 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 and the Portfolio Trust are
PricewaterhouseCoopers LLP (formerly, Price Waterhouse LLP), 1177 Avenue of the
Americas, New York, NY 10036. 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 ("NYSE") is open for business. The procedure
for purchasing Shares is explained in each Prospectus under "Purchase of
Shares."
Each Fund has authorized one or more brokers to accept on its behalf purchase
and redemption orders. These brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on each Fund's behalf.
Each Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Shareholder orders will be priced at a Fund's net asset value next
computed after they have been accepted by an authorized broker or the broker's
authorized designee.
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.
Purchasing Shares with Securities
Each Fund may accept securities in exchange for its Shares. Each Fund will
allow such exchanges only upon the prior approval of the Fund and a
determination by the Fund and its Adviser(s) that the securities to be exchanged
are acceptable.
Any securities exchanged must meet the investment objective and policies of the
Fund and must have a readily ascertainable market value. The market value of any
securities exchanged in an initial investment, plus any cash, must be at least
equal to the minimum investment in the Fund.
Securities accepted by a Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend on the net asset value
of Fund Shares on the day the securities are valued. One Share of the Fund will
be issued for the equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other rights
attached to the securities become the property of the Fund, along with the
securities.
If an exchange is permitted, it will be treated as a sale for federal income tax
purposes. Depending upon the cost basis of the securities exchanged for Fund
Shares, a gain or loss may be realized by the investor.
<PAGE>
Redemption of Shares
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 and Class C 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 Shares received through an exchange will include
the period for which the exchanged Class B Shares were held. However, for
purposes of meeting the $10,000 minimum account value requirement, Class B Share
account values will not be aggregated.
Exchange of Shares
An investor may exchange Shares from any series of the Deutsche Funds, Inc.
(a "Deutsche Fund") into 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 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 NYSE generally
at 4:00 p.m. (U.S. Eastern time) 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.
(U.S. Eastern 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. (U.S. Eastern 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 NYSE and may also take place on
days on which the NYSE 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 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 ("CDSC") 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.
<PAGE>
The Funds' total return based on offering price for Class A Shares and Class
B Shares for the period from commencement of operations through August 31, 1998
were:
Total Return Total Return
Commencement with without
Fund of Operations Sales Load/CDSC Sales Load/CDSC
Top 50 World - Class A 10/2/97 -6.65% -1.20%
Top 50 World - Class B 5/4/98 -15.79% -11.36%
Top 50 Europe - Class A 10/2/97 -1.49% 4.24%
Top 50 Europe - Class B 3/30/98 -11.46% -6.80%
Top 50 Asia - Class A 10/14/97 -38.17% -34.56%
Top 50 Asia - Class B 5/5/98 -29.47% -25.76%
Top 50 US - Class A 10/2/97 -4.59% 0.96%
Top 50 US - Class B 3/18/98 -16.70% -12.32%
European Mid-Cap Fund - Class A10/17/97 7.50% 13.76%
European Mid-Cap Fund - Class B3/30/98 -4.60% 0.40%
German Equity Fund - Class A10/17/97 9.32% 15.68%
German Equity Fund - Class B 3/16/98 -3.96% 1.04%
Japanese Equity Fund - Class A10/20/97 -25.53% -21.20%
Japanese Equity Fund - Class B8/10/98 -7.96% -3.12%
Global Bond Fund - Class A 10/15/97 -0.83% 3.85%
European Bond Fund - Class A10/17/97 1.38% 6.17%
European Bond Fund - Class B 6/25/98 -1.56% 3.44%
There is no similar performance information to report for Class B Shares of the
Global Bond Fund through August 31, 1998 since there were no public sales. Class
C Shares of the Funds were
not available prior to September 1, 1998.
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.
The yields for the Class A Shares of the Global Bond Fund and Class A Shares
and Class B Shares of the European Bond Fund for the thirty-day period ended
August 31, 1998, were 3.62%, 3.20% and 2.65%, respectively. There is no similar
performance information to report for Class B Shares of the Global Bond Fund
through August 31, 1998 since there were no public sales. Class C Shares of the
Funds were not available prior to September 1, 1998.
<PAGE>
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 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
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 NYSE and the American
Stock Exchange, 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:
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"), DSX Mid- Cap, and the Morgan Stanley Capital
Index
("MSCI") - Europe Index;
German Equity Fund may be compared to the DAX, CDAX, MSCI-Germany Index, and the
FT-Europe Index;
Japanese Equity Fund may be compared to the Tokyo Price Index ("TOPIX"),
Nikkei-225 Index, and the MSCI Japan Index;
Global Bond Fund may be compared to the JPM Global Government Bond Index, and
the Salomon Brothers World Government Bond Index;
European Bond Fund may be compared to the JPM European Government Bond Index,
Salomon Brothers European World Government Bond Index, and the EFFAS Government
Bond Index;
Top 50 World may be compared to the MSCI-World Index;
Top 50 Europe may be compared to the MSCI-Europe Index;
Top 50 Asia may be compared to the MSCI Pacific Index and MSCI Pacific ex Japan
Index;
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.
Economic and Market Information
Advertising and sales literature for the Funds may include discussions of
economic, financial and political developments and their effect on the
securities market. For example, such advertisements and/or sales literature may
include statements such as the following, setting forth the Manager's views on
certain trends and/or opportunities: European companies are among the world's
strongest, from which an investor could derive potential benefits by investing
in high-quality European companies with strong balance sheets; Europe's stock
markets are growing quickly because Europeans are turning to equities, seeking
higher long-term return potential, which creates opportunities for non-European
investors; the advent of the European Monetary Union, and the resultant single
currency is expected to spur dramatic change by galvanizing Europe into a
single, globally competitive economy; and European companies are working to
improve shareholder value through restructuring aimed at operating more
efficiently and meeting performance targets. Such discussions may also take the
form of commentary on these developments by Fund or Portfolio managers and their
views and analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute.
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
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
orders may be aggregated in order to obtain any price advantages available to
large volume purchases or sales.
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 or
futures transactions when, in the judgement 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
may receive brokerage commissions or other transaction-related compensation from
the Portfolios. For the fiscal year ended August 31, 1998, the Portfolios paid
$52,582.83 in brokerage commissions to Deutsche Bank AG, an affiliated broker,
which represents 12.42% of the aggregate brokerage commissions paid and 16.06%
of the aggregate principal amount of trades by affiliated brokers. For the
fiscal year ended August 31, 1998, the Portfolios paid $46,008.34 in brokerage
commissions to Deutsche Bank Securities, New York, an affiliated broker, which
represents 10.87% of the aggregate brokerage commissions paid and 21.13% of the
aggregate principal amount of trades by affiliated brokers. For the fiscal year
ended August 31, 1998, the Portfolios paid $8,815.65 in brokerage commissions to
Morgan Grenfell Asia Securities, Ltd., an affiliated broker, which represents
2.08% of the aggregate brokerage commissions paid and 2.06% of the aggregate
principal amount of trades by affiliated brokers. For the fiscal year ended
August 31, 1998, the Portfolios paid $2,937.36 in brokerage commissions to
Deutsche Morgan Grenfell, an affiliated broker, which represents 0.69% of the
aggregate brokerage commissions paid and 0.78% of the aggregate principal amount
of trades by affiliated brokers. Portfolio Turnover
The Adviser does not anticipate that portfolio turnover will result in adverse
tax consequences. However, the relative performance of the Portfolios'
investments may make a realignment of the Portfolios' portfolios desirable from
time to time. The frequency of such portfolio realignments will be determined by
market conditions. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs that the Fund will bear
directly.
For the period from October 2, 1997 (commencement of operations) to August 31,
1998, the portfolio turnover rate of the Top 50 World Portfolio was 125%. The
portfolio turnover rate is representative of only 11 months of activity.
For the period from October 2, 1997 (commencement of operations) to August 31,
1998, the portfolio turnover rate of the Top 50 Europe Portfolio was 27%. The
portfolio turnover rate is representative of only 11 months of activity.
For the period from October 14, 1997 (commencement of operations) to August 31,
1998, the portfolio turnover rate of the Top 50 Asia Portfolio was 54%. The
portfolio turnover rate is representative of only 10 months of activity.
For the period from October 2, 1997 (commencement of operations) to August 31,
1998, the portfolio turnover rate of the Top 50 US Portfolio was 24%. The
portfolio turnover rate is representative of only 11 months of activity.
For the period from October 17, 1997 (commencement of operations) to August 31,
1998, the portfolio turnover rate of the Provesta Portfolio was 82%. The
portfolio turnover rate is representative of only 10 months of activity.
For the period from October 17, 1997 (commencement of operations) to August 31,
1998, the portfolio turnover rate of the Investa Portfolio was 93%. The
portfolio turnover rate is representative of only 10 months of activity.
For the period from October 20, 1997 (commencement of operations) to August 31,
1998, the portfolio turnover rate of the Japanese Equity Portfolio was 95%. The
portfolio turnover rate is representative of only 10 months of activity.
For the period from October 15, 1997 (commencement of operations) to August 31,
1998, the portfolio turnover rate of the Global Bond Portfolio was 43%. The
portfolio turnover rate is representative of only 10 months of activity.
For the period from October 17, 1997 (commencement of operations) to August 31,
1998, the portfolio turnover rate of the European Bond Portfolio was 177%. The
portfolio turnover is representative of only 10 months of activity.
Taxes
The following information supplements and should be read in conjunction with the
sections in the Prospectus entitled "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; and (b) diversify its holdings so that, at the end of each
fiscal quarter, (i)at least 50% of the value of the Fund's total assets is
represented by cash, U.S. government securities, investments in other RICs
and other securities limited in respect of any one issuer, to an amount
not greater than 5% of the Fund's total assets, and 10% of the outstanding
voting securities of such issuer and (ii) not more than 25% of the value
of its total assets is invested in the securities of any one issuer (other
than U.S. government securities or the securities of other RICs). As a
RIC, 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.
Investors should consult their tax adviser for further details.
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 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 new
legislation, effective for the Funds' taxable years beginning after
December 31, 1997, the Fund may instead elect to mark-to-market the shares
annually, in which case the interest charge described in the first
sentence above 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.
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.
Foreign Taxes
As set forth in the Prospectus under "Taxes," 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 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 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.
Under new legislation 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, such credit would be denied where the shareholder of the
Fund does not satisfy the above holding requirement with respect to its
Shares in the Fund.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the
particular 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 "Taxes" 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 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 17,500,000,000 shares of common stock, par value
$0.001 per share, of which 250,000,000 shares have been classified as Shares of
each Fund. The Corporation currently consists of eleven such series and two
classes of Shares for 10 of the Funds known as Class A Shares and Class B
Shares. Five of the Funds also offer Class C Shares and one Fund offers Class Y
Shares.
Shareholders are entitled to one vote for each Share held on matters on which
they are entitled to vote. Shareholders in the Corporation do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Corporation may elect all of the Directors of the
Corporation if they choose to do so and in such event the other shareholders in
the Corporation would not be able to elect any Director. The Corporation is not
required and has no current intention to hold meetings of shareholders annually,
but the Corporation will hold special meetings of shareholders when in the
judgment of the Corporation's Directors it is necessary or desirable to submit
matters for a shareholder vote. Shareholders have under certain circumstances
(e.g., upon application and submission of certain specified documents to the
Directors by a specified number of shareholders) the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Directors. Shareholders also have the right
to remove one or more Directors without a meeting by a declaration in writing by
a specified number of shareholders. Shares have no preference, pre-emptive,
conversion or similar rights (except the automatic conversion of Class B Shares
into Class A Shares as discussed in the Prospectus under "Purchase of Shares").
Shares, when issued, are fully paid and non-assessable.
Stock certificates are not issued by the Corporation except upon written
request.
No certificates will be issued for fractional Shares.
The Articles of Incorporation of the Corporation contain a provision permitted
under Maryland Corporation Law which under certain circumstances eliminates the
personal liability of the Corporation's Directors to the Corporation or its
shareholders.
The Articles of Incorporation and the By-Laws of the Corporation provide that
the Corporation indemnify the Directors and officers of the Corporation to the
full extent permitted by the Maryland Corporation Law, which permits
indemnification of such persons against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Corporation. However, nothing in the Articles of Incorporation
or the By-Laws of the Corporation protects or indemnifies a Director or Officer
of the Corporation against any liability to the Corporation or its shareholders
to which he would otherwise be subject by reason of willful 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 Prospectuses, 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 accountants.
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 NYSE or foreign stock exchange is closed for other than
weekends and holidays or when regular trading on such exchange is restricted as
determined by the SEC by rule or regulation, (ii) during periods in which an
emergency exists which causes disposal of, or evaluation of the net asset value
of, portfolio securities to be unreasonable or impracticable, or (iii) for such
other periods as the SEC may permit.
Telephone calls to 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 Prospectuses do not contain all the information included in
the Corporation's Registration Statement filed with the SEC under the 1933 Act
and the Corporation's and the Portfolio Trust's Registration Statement filed
under the 1940 Act. Pursuant to the rules and regulations of the SEC, certain
portions have been omitted. The Registration Statement including the exhibits
filed therewith may be examined at the office of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and the
Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
Financial Statements
Audited financial statements for Class A Shares and Class B Shares (except
for the Global Bond Fund) of the Funds for the period from commencement of
operations through August 31, 1998 are incorporated herein by reference to the
Annual Reports of the Funds dated August 31, 1998 (File Nos. 333-7008 and
811-8227). A copy of each such report will be provided without charge to each
person receiving this Statement of Additional Information. Class B Shares of the
Global Bond Fund did not have any operations through August 31, 1998. Class C
Shares were not offered before September 1, 1998.
<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 Funds, the "Equity Funds"),
(collectively with the Top 50 Portfolios, 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)
<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.
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.
prospectus
dated October 31, 1998
Deutsche European Mid-Cap Fund
(Class A Shares, Class B Shares and Class C Shares) Deutsche German
Equity Fund (Class A Shares, Class B Shares and Class C Shares) Deutsche
Japanese Equity Fund (Class A Shares and Class B Shares) Deutsche Global Bond
Fund (Class A Shares and Class B Shares) Deutsche European Bond Fund (Class A
Shares, Class B Shares and Class C Shares)
An Open-End
Management
Investment
Company
DEUTSCHE EUROPEAN MID-CAP FUND (Class A Shares, Class B Shares and Class C
Shares)
DEUTSCHE GERMAN EQUITY FUND (Class A Shares, Class B Shares and Class C Shares)
DEUTSCHE JAPANESE EQUITY FUND (Class A Shares and Class B Shares)
DEUTSCHE GLOBAL BOND FUND (Class A Shares and Class B Shares)
DEUTSCHE EUROPEAN BOND FUND (Class A Shares, Class B Shares and Class C Shares)
5800 Corporate Drive
Pittsburgh, PA 15237-7010
For information call toll-free 888-4-DEUTSCHE (888-433-8872)
This Prospectus relates to the Deutsche European Mid-Cap Fund ("European Mid-
Cap Fund"), Deutsche German Equity Fund ("German Equity Fund"), Deutsche
Japanese Equity Fund ("Japanese Equity Fund") (collectively, the "Equity
Funds"), 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") (together with the Funds, the "Deutsche
Funds"). The investment objective of the 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 the
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 ("SEC") in a Statement of Additional
Information dated October 31, 1998. 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, CLASS B SHARES OR CLASS C 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.
Prospectus dated October 31, 1998
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary........................................ 2
Financial Highlights................................... 4
The Funds.............................................. 6
Investment Objective, Policies and Restrictions........ 6
Equity Funds.......................................... 6
Bond Funds............................................ 7
All Funds............................................. 7
Risk Factors........................................... 10
Equity Investments.................................... 10
Fixed Income Securities............................... 10
Foreign Investments................................... 10
Emerging Markets (Provesta Portfolio and
Global Bond Portfolio Only)........................... 11
Futures, Options and Warrants......................... 11
Geographic Investment Emphasis........................ 11
Local Securities Markets.............................. 11
Management of the Corporation and the Portfolio Trust.. 12
Manager............................................... 12
Adviser............................................... 12
Historical Performance of Corresponding DWS Funds..... 12
Portfolio Management.................................. 14
Administrator......................................... 14
Operations Agent...................................... 14
Administrative Agent.................................. 15
Distributor........................................... 15
Transfer Agent, Custodian and Fund Accountant......... 16
Year 2000 Statement................................... 16
Expenses.............................................. 16
Portfolio Brokerage................................... 16
Investing in the Funds................................. 17
Class A Shares........................................ 17
Class B Shares........................................ 17
Class C Shares........................................ 17
Other Share Differences............................... 17
Purchase of Shares..................................... 17
Investing in Class A Shares........................... 18
Investing in Class B Shares and Class C Shares........ 20
Conversion of Class B Shares.......................... 20
Purchasing Shares Through a Financial Intermediary.... 20
Purchasing Shares by Wire............................. 20
Purchasing Shares by Check............................ 20
Special Purchase Features.............................. 20
Systematic Investment Program......................... 20
Retirement Plans...................................... 21
Exchange Privilege..................................... 21
Class A Shares........................................ 21
Class B Shares........................................ 21
Class C Shares........................................ 21
Requirements for Exchange............................. 21
Tax Consequences...................................... 21
Making an Exchange.................................... 21
Telephone Instructions................................ 21
Redemption of Shares................................... 21
Redeeming Shares Through a Financial Intermediary..... 21
Redeeming Shares by Telephone......................... 22
Redeeming Shares by Mail.............................. 22
Special Redemption Features............................ 22
Systematic Withdrawal Program......................... 22
Contingent Deferred Sales Charge....................... 22
Class A Shares........................................ 22
Class B Shares........................................ 22
Class C Shares........................................ 22
Class A Shares, Class B Shares and Class C Shares..... 23
Elimination of Contingent Deferred Sales Charge....... 23
Account and Share Information.......................... 23
Certificates and Confirmations........................ 23
Accounts with Low Balances............................ 23
Dividends and Distributions............................ 23
Net Asset Value........................................ 24
Organization........................................... 24
Taxes.................................................. 25
Additional Information................................. 26
Appendix A............................................. 26
</TABLE>
EXPENSE SUMMARY
The following table summarizes estimated shareholder transaction and annual
operating expenses of Class A Shares and Class B Shares of each Fund and Class C
Shares of the European Bond Fund, European Mid-Cap Fund and the German Equity
Fund, and the allocable operating expenses of their corresponding Portfolios.
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
<TABLE>
<CAPTION>
Equity Equity and
Funds Bond Funds Bond Funds
Class A Class A Class B Class C
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.50% 4.50% None 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) 0.00% 5.00%(2) 1.00%(3)
Redemption Fees (as a percentage of
amount redeemed, if applicable) None None None None
Exchange Fees None None None None
</TABLE>
(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."
(2) In the first year, declining to 1.00% in the sixth year and 0% thereafter.
(3) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within one
year of their purchase date. For a more complete description, see
"Contingent Deferred Sales Charge."
Expense Table
Annual Operating Expenses (After Expense Reimbursement)
(As a percentage of average net assets)
<TABLE>
<CAPTION>
Equity Funds Bond Funds
Class B Class B
and and
Class A Class C ClassA Class C
<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>
EXPENSE SUMMARY (CONTINUED)
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:
<TABLE>
<CAPTION>
Equity Funds Bond Funds
Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 70 $ 75 $ 34 $ 58 $ 72 $ 31
3 Years $103 $106 $ 73 $ 84 $ 97 $ 64
5 Years $137 $148 $126 $113 $133 $110
10 Years $235 $250 $250 $195 $219 $219
An investor would pay the following expenses on a $1,000 investment,
assuming
(1) a 5% annual return and (2) no redemption at the end of each time period:
1 Year $ 70 $24 $ 24 $ 58 $ 21 $ 21
3 Years $103 $73 $ 73 $ 84 $ 64 $ 64
5 Years $137 $126 $126 $113 $110 $110
10 Years $235 $250 $250 $195 $219 $219
</TABLE>
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in a
Fund would bear. Wire transferred redemptions of less than $5,000 may be subject
to additional fees. The fees and expenses included in "Other Expenses" are
estimated for each Fund's fiscal year ending August 31, 1999 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
the expenses of each Fund through at least August 31, 1999 to the extent
necessary to maintain such Fund's ratio of total operating expenses to average
annual net assets at the level indicated above. Absent reimbursement of
expenses, estimated "Other Expenses" for the first fiscal year of the European
Mid-Cap Fund, German Equity Fund, Japanese Equity Fund, Global Bond Fund and the
European Bond Fund were 17.76%, 72.51%, 453.14%, 242.87% and 453.22%,
respectively, and "Total Operating Expenses" were 18.86%, 73.61%, 454.24%,
243.87% and 454.22%, respectively, of the Fund's average daily net assets
attributed to Class A Shares, and 19.61%, 74.36% 454.99%, 0.00% and 454.97%,
respectively, of the Fund's average daily net assets attributed to Class B
Shares, and 19.61%, 74.36%, and 454.99%, respectively, of the European Mid-Cap
Fund, German Equity Fund, and the European Bond Fund average daily net assets
attributed to Class C 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." Because the
fees paid under the 12b-1 Plan of the Fund are charged against the assets of the
Fund, long-term shareholders may indirectly pay an amount that is more than the
economic equivalent of the maximum front-end sales charge that such Fund would
be permitted to charge. The example is hypothetical; it is included solely for
illustrative purposes. It should not be considered a representation of future
performance; actual expenses may be more or less than those shown.
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
For the period from Commencement of Operations to August 31, 1998(a)
Selected data for a Class A share of common stock outstanding throughout the
period.
The following table has been audited by PricewaterhouseCoopers LLP, the
Funds' independent accountants. Their report dated October 16, 1998, on the
Funds' financial statements for the period ended August 31, 1998, and on the
following table for the periods presented, is included in the Funds' Annual
Report. This table should be read in conjunction with the Funds' financial
statements and notes thereto, which is included in the Funds' Annual Report. The
Annual Report is incorporated by reference into and accompanies the Statement of
Additional Information. They may be obtained from the Funds free of charge.
Class B Shares of the Global Bond Fund did not have any operations through
August 31, 1998. Class C Shares were not offered to the public prior to
September 1, 1998.
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche Deutsche
European German Japanese Global European
Mid-Cap Equity Equity Bond Bond
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $12.50 $ 12.50 $ 12.50 $ 12.50 $ 12.50
Investment operations:
Net investment income (loss) 0.01 0.02 (0.07) 0.26 0.19
Net realized and unrealized gain (loss) on
investments and foreign currency allocated
from
corresponding Deutsche Portfolio 1.71 1.94 (2.58) 0.22 0.58
Increase (decrease) from investment operations 1.72 1.96 (2.65) 0.48 0.77
Distributions to Shareholders:
Dividends from net investment income -- -- -- (0.19) (0.12)
Total distributions -- -- -- (0.19) (0.12)
Net asset value at end of period $14.22 $ 14.46 $ 9.85 $ 12.79 $ 13.15
Total Return (based on net asset value)(c)* 13.76% 15.68% (21.20)% 3.85% 6.17%
Ratios and Supplemental Data:
Net assets, end of period (000's) $2,402 $ 462 $ 14 $ 84 $ 28
Ratios to average net assets:
Expenses(b)** 1.60% 1.60% 1.60% 1.30% 1.30%
Net investment income (loss)(b)** 0.23% 0.75% (1.00)% 3.62% 2.67%
(a) Commencement of operations: 10/17/97 10/17/97 10/20/97 10/15/97 10/17/97
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
Expenses to average net assets** 18.86% 73.61% 454.24% 243.87% 454.22%
Net investment loss to average net assets** (17.03)% (71.26)% (453.64)% (238.95)% (450.25)%
</TABLE>
(c) Total Return based on net asset value, excluding the effect of shareholder
transaction charges, assumes a purchase of common stock at net asset value at
commencement of operations, reinvestment of distributions at net asset value
and a sale on the last day of the period, also at net asset value. During the
period, total return would have been lower had certain expenses not been
reimbursed by the Manager. * Not annualized ** Annualized
FINANCIAL HIGHLIGHTS (CONTINUED)
Deutsche Funds, Inc.
For the period from Inception Date to August 31, 1998(a)
Selected data for a Class B share of common stock outstanding throughout the
period.
The following table has been audited by PricewaterhouseCoopers LLP, the
Funds' independent accountants. Their report dated October 16, 1998, on the
Funds' financial statements for the period ended August 31, 1998, and on the
following table for the periods presented, is included in the Funds' Annual
Report. This table should be read in conjunction with the Funds' financial
statements and notes thereto, which is included in the Funds' Annual Report. The
Annual Report is incorporated by reference into and accompanies the Statement of
Additional Information. They may be obtained from the Funds free of charge.
Class B Shares of the Global Bond Fund did not have any operations through
August 31, 1998. Class C Shares were not offered to the public prior to
September 1, 1998.
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche Deutsche
European German Japanese Global European
Mid-Cap Equity Equity Bond Bond
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 12.50 $12.50 $12.50 -- $12.50
Investment operations:
Net investment income (loss) (0.02) (0.01) (0.01) -- 0.08
Net realized and unrealized gain (loss) on investments and
foreign currency allocated
from corresponding Deutsche Portfolio 0.07 0.14 (0.38) -- 0.35
Increase (decrease) from investment operations 0.05 0.13 (0.39) -- 0.43
Distributions to Shareholders:
Dividends from net investment income -- -- -- -- (0.11)
Total distributions -- -- -- -- (0.11)
Net asset value at end of period $ 12.55 $12.63 $ 12.11 -- $12.82
Total Return (based on net asset value)(c)* 0.40% 1.04% (3.12)% -- 3.44%
Ratios and Supplemental Data:
Net assets, end of period (000's) $ 4,287 $ 278 $ 283 -- $ 85
Ratios to average net assets:
Expenses(b)** 2.35% 2.35% 2.35% -- 2.05%
Net investment income (loss)(b)** (0.70)% (0.19)% (1.25)% -- 2.38%
(a) Inception date: 3/30/98 3/16/98 8/10/98 -- 6/25/98
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
Expenses to average net assets** 19.61% 74.36% 454.99% -- 454.97%
Net investment loss to average net assets** (17.96)% (72.20)% (453.89)% -- (450.54)%
</TABLE>
(c) Total Return based on net asset value, excluding the effect of shareholder
transaction charges, assumes a purchase of common stock at net asset value
at inception date, reinvestment of distributions at net asset value and a
sale on the last day of the period, also at net asset value. During the
period, total return would have been lower had certain expenses not been
reimbursed by the Manager.
* Not annualized
** Annualized
THE FUNDS
Each Fund is a non-diversified, open-end management investment company and is
a series of shares of common stock of the Corporation (see "Organization"). The
investment objective of the 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 the Japanese Equity Fund
is to achieve high capital appreciation. The investment objective of the Bond
Funds is to achieve steady, high 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 European Mid-Cap Fund invests all of its investable
assets in the Provesta Portfolio (US Dollar)("Provesta Portfolio"); the German
Equity Fund invests all of its investable assets in the Investa Portfolio (US
Dollar)("Investa Portfolio"); the Japanese Equity Fund invests all of its
investable assets in the Japanese Equity Portfolio (US Dollar)("Japanese Equity
Portfolio"); the Global Bond Fund invests all of its investable assets in the
Global Bond Portfolio (US Dollar)("Global Bond Portfolio"); and the European
Bond Fund invests all of its investable assets in the European Bond Portfolio
(US Dollar)("European Bond Portfolio"). The Provesta Portfolio, Investa
Portfolio and Japanese Equity Portfolio are referred to herein individually, as
an "Equity Portfolio" and collectively, as the "Equity Portfolios." The Global
Bond Portfolio and the European Bond Portfolio are referred to herein
individually, as a "Bond Portfolio" and collectively, as the "Bond 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, (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 "Directors, Trustees, and Officers" in the Statement of
Additional Information.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Each Fund seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Portfolio, an open-end management
investment 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.
Equity Funds
The investment objective of the 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 the Japanese
Equity Fund is to achieve high capital appreciation.
The 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"), Poland, 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 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 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 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 the Investa
Portfolio's investment in fixed income securities (excluding bank deposits and
money market instruments) will not exceed 20% of 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) 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) 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 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.
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:
. the Federal Republic of Germany, ("Germany") a special purpose fund of
Germany, a state of Germany, the European Union or a member state of the
Organization for Economic Cooperation and Development (an "OECD Member"),
. 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),
. 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,
. other debtors, if guaranteed as to the payment of interest and repayment of
principal by one of the aforementioned bodies, or
. 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 the 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 rating categories of Moody's
Investors Service, Inc. ("Moody's"), currently Aaa, Aa, A and Baa, or of
Standard & Poor's ("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. Fixed income securities rated Baa by Moody's or BBB by S&P have
speculative characteristics. 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 Germany, the states of Germany, 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 (written) 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." 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, options 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 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. A Portfolio may also 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) 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 net 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 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 in effect 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 or guaranteed by the U.S. government or its agencies or
instrumentalities.
Non-Fundamental Investment Restrictions
Each Portfolio is permitted to borrow money although, as an operating
policy, 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 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 exposed to
the aforementioned currency risks. See "Foreign Currency Exchange Transactions"
in the Statement of Additional Information.
On January 1, 1999, eleven of the fifteen Member States will have their
currency exchange rate irrevocably fixed to a single European currency, the
euro. The euro will become legal tender in those countries from this date.
National currencies will continue to circulate until they are replaced by euro
coins and bank notes on July 1, 2002. The pending unification of European
currency and decision by certain countries not to participate are likely to
create uncertainty in the European markets and thereby increase volatility of
the various currencies and securities. The European securities markets may
become less liquid. These events can adversely affect the Portfolios' investment
and performance, as detailed under "European Currency Unification" 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
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.
The risks involved in making investments in securities of issuers in emerging
markets have been underscored by recent events. For
example, issuers in the Asia region have experienced currency volatility,
political instability and economic declines in recent months. In response to
these declines, Malaysia has recently enacted currency exchange controls,
restricting the repatriation of assets for a period of one year. Earlier this
year, Russia declared a moratorium on repayment of its own debt, substantially
devalued its currency and suspended the government-sponsored foreign exchange
market for its currency.
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 Contracts and Options on Futures Contracts" in the
Statement of Additional Information.
Geographic Investment Emphasis
From time to time, due to investment opportunities perceived by the Manager to
be attractive, a Portfolio or a Fund may invest a relatively larger portion of
its assets in the issuers of securities domiciled, or principally traded, in one
or more individual countries. In the event that such geographic investment
emphasis occurs, the relevant Portfolio or Fund could be subject to greater risk
due to unanticipated, and negative, economic events and/or market action in such
country or countries. Since inception, the Provesta Portfolio has had more than
a majority of its assets invested in German securities. This overweighting may
be continued, or be changed, by the Manager in the future based on its
perceptions of market opportunities.
Local Securities Markets
The German Securities Markets
Equity securities trade on the country's eight regional stock exchanges of
which Frankfurt accounted for approximately 78% of the total volume as of August
31, 1998.
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, 40.83% in 1997, and 3.22% year-to-date as of
August 31, 1998.
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 as of June 30, 1998 represented 24.2% of total trading volume on the
German stock exchanges: Daimler Benz AG with DM 312 billion, Deutsche Bank AG
with DM 242 billion, Siemens AG with DM 190 billion, SAP AG with DM 175 billion,
and VW AG with DM 173 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 72% of annual trade of
volume. In 1997, three industrial groups (banks, electric appliances and
transportation equipment) accounted for approximately 41% 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 (with the Nikkei index of 225 stocks at 14309 in 1992).
After stabilizing at low levels during the next six years, new low levels were
once again reached in 1998 (with the Nikkei attaining a new twelve year low of
12879 in early October, 1998).
Japanese banks have experienced, and may continue to experience, substantial
levels of non-performing loans, making the nationalization of some institutions
a significant concern. 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, 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 $672.4 billion and 74,100 employees as of
June 30, Deutsche Bank AG is one of Europe's largest universal banks. It is
engaged in a wide range of financial services, including retail and commercial
banking, investment banking and insurance. 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, France, Poland and Italy. Together, DFH subsidiaries serve as
manager and/or investment adviser to more than 160 mutual funds, having
aggregate assets under management of more than the equivalent of $77 billion as
of June 30, 1998. DFH and its subsidiaries employ approximately 600
professionals and is one of the largest mutual fund operators 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 June 30, 1998. DFH and its subsidiaries
are known in the financial market as "DWS Group, Investment Group 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; 1997: 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
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 the corresponding Provesta and Investa Portfolios
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 manages 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
during October of 1997 and did not have operating or performance history prior
to that time.
Information about the performance of the European Mid-Cap Fund, German Equity
Fund, and the two corresponding DWS Funds--Provesta (corresponding to the
European Mid-Cap Fund) and Investa (corresponding to the German Equity Fund) is
set forth below. Although each Equity Fund and its corresponding Portfolio have
the same investment objectives, policies and 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 Fund 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 (each with differing
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 (net of fees) 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 total return for the Class A Shares of the
European Mid-Cap Fund and the German Equity Fund, and for securities indices
believed by the Adviser to be suitable for performance comparisons, for the
period from the commencement of operations on October 17, 1997 to August 31,
1998, and the average annualized total return for the Provesta and Investa
Funds, and of securities indices believed by the Adviser to be suitable for
performance comparisons with the Provesta and Investa Portfolios and the
corresponding DWS Funds, for the three-, five- and ten-year periods ended August
31, 1998. The information in the table for the one-year period reflects actual
total returns for the first-year of operations of the European Mid-Cap Fund and
the German Equity Fund. One-year information for the corresponding DWS Funds
appears in a note to the table. These figures, which are unaudited, are based on
the actual gross investment performance of the DWS Funds with the adjustments
indicated below. These figures were not adjusted to reflect the expense ratios
of the Funds (described in the expense table under "Expenses") which are higher
than the actual expenses of the DWS Funds (which bear a combined fund management
and expense fee of 0.50% per annum of net assets). Any such adjustment would
reduce the performance shown below.
<TABLE>
<CAPTION>
PROVESTA(1)
(Corresponding to the Provesta Portfolio and
the European Mid-Cap Fund(6))
Total Return for the Periods Ended August 31, 1998
Historical Performance
European in U.S. Dollars (unaudited)
Mid-Cap Without With CDAX Index MSCI Europe
Fund(6) sales Load(2) Sales Load(3) (in U.S. Dollars)(4) (in U.S. Dollars)(5)
<S> <C> <C> <C> <C>
10/17/97 to
8/31/98 13.76% 7.48% 14.43% 12.47%
Provesta(1)
- ------------
Three Years 16.02% 13.96% 16.63% 19.36%
Five Years 17.46% 16.21% 15.44% 15.73%
Ten Years 14.52% 13.90 14.07% 12.88%
</TABLE>
(1) Net Assets as of 8/31/98 were DM 1,937 million ($1,096 million). Provesta
commenced investment operations in November 1985. The table reflects the
performance of the Provesta for the three-, five-, and ten-year periods
ended 8/31/98. The performance of the Provesta for the period from 10/17/97
to 8/31/98, was 13.51% without the sales load, and 7.59% with the sales
load.
(2) 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."
(3) Adjusted to reflect deduction for the maximum sales charge of 5.50%
applicable to Class A Shares.
(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 Bsrse AG.
(5) The Morgan Stanley Capital Market Europe Index ("MSCI Europe") is an
unmanaged, capitalization-weighted securities index which represents 60% of
the market capitalization of 13 European countries.
(6) The table reflects the actual total return of the European Mid-Cap Fund from
the commencement of operations on October 17, 1997.
<TABLE>
<CAPTION>
INVESTA(1)
(Corresponding to the Investa Portfolio and
the German Equity Fund(6))
Total Returns for the Periods Ended August 31, 1998
Historical Performance
German in U.S. Dollars (unaudited)
Equity Without With DAX Index MSCI Germany
Fund(6) Sales Load(2) Sales Load(3) (in U.S. Dollars)(4) (in U.S. Dollars)(5)
<S> <C> <C> <C> <C>
10/17/97 to
8/31/98 15.68% 9.30% 18.32% 18.74%
Investa(1)
- -----------
Three Years 22.50% 20.33% 21.35% 18.18%
Five Years 18.60% 17.34% 18.53% 16.09%
Ten Years 14.78% 14.17% 15.86% 13.97%
</TABLE>
(1) Assets as of 8/31/98 were DM 4,943 million ($2,798 million). Investa
commenced investment operations in December 1956. The table reflects the
performance of the Investa for the three-, five-, and ten-year periods ended
8/31/98. The performance of the Investa for the period from 10/17/97 to
8/31/98, was 23.06% without the sales load, and 16.64% with the sales
load.
(2) 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."
(3) Adjusted to reflect deduction for the maximum sales charge of 5.50%
applicable to Class A Shares.
(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 Bsrse AG.
(5) The Morgan Stanley Capital Market Germany Index ("MSCI Germany") is an
unmanaged, capitalization-weighted securities index which represents 60% of
the market capitalization of Germany.
(6) The table reflects the actual total return of the German Equity Fund from
the commencement of operations on October 17, 1997.
The above results are shown in U.S. dollars on the basis of conversion at the
rate 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
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); and (2) 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.
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 13 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 18.4 billion ($10.1 billion) as of June 30, 1998. 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
registered mutual fund with the same 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.
Effective January 1, 1999, Henning Gebhardt will become the portfolio manager
for the Japanese Equity Portfolio, taking over the responsibility from Hannah
Cunliffe who will leave the company by the end of 1998. Mr. Gebhardt has two
years of experience as an investment manager, joining DWS in 1996. He was
employed by Bayerische Hypotheken- und Wechselbank from 1995 to 1996, in the
trading department for fixed income and option products. Prior to this, Mr.
Gebhardt studied at the University of Gsttingen, where he received a degree in
economics. Mr. Gebhardt is a member of the Asian Equity team at DWS, responsible
for funds holding assets under management of DM 1 billion ($553 million) as of
June 30, 1998.
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 23.6 billion ($13.1 billion) as of June
30, 1998.
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, except that during the first two years of the
agreement 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 Fund's operation and $125,000 for the second year will be paid to
the Operations Agent and the Administrator.
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, and the Administrator.
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.
The Portfolio Trust has entered into an administrative agreement with IBT
(Cayman). As Administrative Agent of the Portfolios, IBT (Cayman) receives a fee
from each Portfolio, which is computed daily and paid monthly at an annual rate
of 0.025% on the first $200 million, 0.02% on the next $800 million and 0.01% on
assets in excess of $1 billion, subject to a minimum of $40,000 during the first
year of the Portfolio's operations, $45,000 in the second year of operations and
$50,000 in the third year.
Distributor
Edgewood serves as principal Distributor for shares of each Fund. Edgewood is
located at 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-5829. 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, Inc. and an affiliate of Federated Services Company.
Securities laws may require certain financial intermediaries 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 and 1.0% of the net asset
value of Class C 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 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 and Class C Shares are subject to a distribution
plan (the "Distribution Plan") and Class A Shares, ClassBShares and Class C
Shares are subject to a service plan (the "Service Plan").
Under the Distribution Plan, Class B Shares and Class C Shares will pay a fee to
the Distributor in an amount computed at an annual rate of 0.75% of the average
daily net assets of a Fund represented by Class B Shares and Class C Shares to
finance any activity which is principally intended to result in the sale of
Class B Shares and Class C Shares of a 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' and Class C 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, Class B Shares and Class C Shares a
fee computed at an annual rate of 0.25% of the average daily net assets of each
such class of shares. The services 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, 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 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, Class B Shares and Class C 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, 1001
Liberty Avenue, 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.
Year 2000 Statement
Like other mutual funds and business organizations worldwide, the Funds' service
providers (among them, the Manager, Adviser, Distributor, Administrator,
Custodian and Transfer Agent) must ensure that their computer systems are
adjusted to properly process and calculate date-related information from and
after January 1, 2000. Many software programs and, to a lesser extent, the
computer hardware in use today cannot distinguish the year 2000 from the year
1900. Such a design flaw could have a negative impact in the handling of
securities trades, pricing and accounting services. The Funds and their service
providers are actively working on necessary changes to computer systems to deal
with the year 2000 issue and the Funds' service providers have represented to
the Funds that they believe that their systems will be year 2000 compliant when
required. Analysis continues regarding whether the financial impact of
instituting a year 2000 compliant program will have any financial impact on the
Funds' operations.
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,
1999, 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%, 2.05%, 2.35% and 2.05% of the average annual net assets of Class A
Shares of the Equity Funds, Class B Shares of the Equity Funds, Class A Shares
of the Bond Funds, Class B Shares of the Bond Funds, Class C Shares of the
European Mid-Cap Fund and the German Equity Fund; and Class C Shares of the
European Bond Fund, respectively. There is no assurance that DFM will continue
this reimbursement beyond the specified period.
Expenses of Class A Shares, Class B Shares and Class C Shares
Holders of Class A Shares, Class B Shares and Class C 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, Class B Shares and Class C
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, Class B Shares and Class C 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, Class B
Shares and Class C 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, Class B
Shares and Class C Shares; registration fees paid to the SEC and to state
securities commissions as attributable to holders of Class A Shares, Class B
Shares and Class C Shares; expenses related to administrative personnel and
services as required to support holders of Class A Shares, Class B Shares and
Class C Shares; legal fees relating solely to Class A Shares, Class B Shares or
Class C Shares; and Directors' fees incurred as a result of issues related
solely to Class A Shares, Class B Shares or Class C Shares.
Portfolio Brokerage
Although each Portfolio does not intend to invest for the purpose of seeking
short-term profits, securities in the Portfolios will be sold whenever the
Adviser believes it is appropriate to do so in light of the investment objective
of each Fund and each Portfolio, without regard to the length of time a
particular security may have been held. The estimated annual portfolio turnover
rate for the Provesta Portfolio, Investa Portfolio, Japanese Equity Portfolio,
Global Bond Portfolio and the 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 rate of
portfolio turnover of each Portfolio may exceed that of certain other mutual
funds with the same investment objective. 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. See "Taxes."
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 ("Deutsche Agent")
may act as one of the agents of the Portfolios in the purchase and sale of
portfolio securities, futures contracts or options on futures contracts when, in
the judgment of the Adviser, that Deutsche Agent will be able to obtain a price
and execution at least as favorable as other qualified brokers or futures
commission merchants, as applicable. As one of the primary brokers used by the
Portfolios, Deutsche Bank AG or its affiliates receives brokerage commissions
from each Portfolio, and may receive compensation for executing futures
transactions.
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.
From commencement of operations through August 31, 1998, the Provesta
Portfolio, Investa Portfolio, and the Japanese Equity Portfolio paid the
following aggregate brokerage commissions, respectively: $41,688, $21,095, and
$16,547. No brokerage commissions were paid by the Global Bond Portfolio and the
European Bond Portfolio.
INVESTING IN THE FUNDS
Each Fund offers investors 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% 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" and except for shares
purchased without a sales charge that are redeemed within one year of purchase
as described under "Contingent Deferred Sales Charge--Class A Shares"). 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:
<TABLE>
<CAPTION>
Contingent
Year of Redemption Deferred
After Purchase Sales Charge
<S> <C>
First 5.00%
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>
Class C Shares
Class C Shares are sold without an initial sales charge, but a contingent
deferred sales charge of 1.00% will be charged on assets redeemed within the
first full 12 months following purchase.
Other Share Differences
Class B Shares and Class C Shares also bear a fee pursuant to a Distribution
Plan, adopted in accordance with Rule 12b-1 under the 1940 Act, while Class A
Shares do not bear such a fee. Class A Shares, Class B Shares and Class C 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
and Class C 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 in the case of Class B Shares) 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
("NYSE") 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. 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 and may separately charge a
fee for Fund transactions.)
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 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
<TABLE>
<CAPTION>
Sales Charge Dealer
as a Percentage of Concession as
Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
<S> <C> <C> <C>
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 but less
than $2 million None None 1.00%*
$2 million but less
than $5 million None None 0.80%*
$5 million but less
than $50 million None None 0.50%*
$50 million but less
than $100 million None None 0.25%*
$100 million or more None None 0.15%*
</TABLE>
* See "Dealer Concession" below.
Bond Funds
<TABLE>
<CAPTION>
Sales Charge Dealer
as a Percentage of Concession as
Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
<S> <C> <C> <C>
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% 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 but less
than $2 million None None 1.00%*
$2 million but less
than $5 million None None 0.80%*
$5 million but less
than $50 million None None 0.50%*
$50 million but less
than $100 million None None 0.25%*
$100 million or more None None 0.15%*
</TABLE>
* See "Dealer Concession" below.
Dealer Concession
Dealer concession will be paid to dealers who initiate and are responsible for
purchases of $1 million or more. The dealer concession may be changed from time
to time and any portion of the sales charge which is not paid to a dealer will
be retained by the Distributor. However, the Distributor may offer to pay
dealers up to 100% of the sales charge retained by it. The Distributor, at its
expense, may provide additional promotional incentives to dealers. Such payments
may take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees to attend informational meetings about
the Funds or other special events at recreational type facilities, or items of
material value. 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:
. sales charge waiver;
. quantity discounts and accumulated purchases;
. concurrent purchases;
. signing a 13-month letter of intent;
. using the reinvestment privilege; or
. 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
intermediaries 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 intermediaries 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 acts 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 Bank Securities, Inc., Deutsche
Bank Trust Company, or any of their 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. Investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of such investment
advisers or financial planners who place trades for their own accounts if the
accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker or agent;
8. Retirement and deferred compensation plans and trusts used to fund those
plans, including, but not limited to, those defined in section 401(a),
403(b), or 457 of the Code and "rabbi trusts,"
9. Qualified separate accounts maintained by an insurance company pursuant to
the laws of any state or territory of the United States;
10. 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;
11. 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 the shareholder 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 the shareholder's 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 the shareholder's 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 in escrow (in shares) up to the maximum
sales charge of the total amount intended to be purchased 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 the shareholder's financial
intermediary of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems the shareholder's 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 the investor's 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 and Class C Shares
Class B Shares and Class C Shares are sold at their net asset value next
determined after an order is received. While Class B Shares and Class C Shares
are sold without an initial sales charge, under certain circumstances described
under "Contingent Deferred Sales Charge" a contingent deferred sales charge may
be applied by the Distributor at the time Class B Shares and Class C 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 ("IRS") 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 a 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. (U.S. Eastern
time) and must be transmitted by the broker to the Fund before 5:00 p.m. (U.S.
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. (U.S. Eastern time) in
order for shares to be purchased at that day's price. With respect to the Global
Bond Fund, orders must be received and transmitted by the broker to the Fund by
the later of: (a) the close of regular trading on the NYSE (generally 4:00 p.m.
U.S. Eastern time), or (b) the latest close of regular trading on any European
securities exchange on which the Fund's portfolio securities may trade. It is
the financial intermediary's responsibility to transmit orders promptly.
The financial intermediary which maintains investor accounts in Class B Shares
or Class C 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 Number 0110-0143-8; BNF Account Number 570000307. For Credit to: (Fund
Name) (Fund Class); (Fund Number, this number can be found on the account
statement or by contacting the Fund); Account Number; Trade Date and Order
Number; Group Number or Dealer Number; 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
Individual Retirement Accounts ("IRAs"). 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 other Deutsche Funds. Contact your financial intermediary regarding
the availability of other Class B Shares in the Deutsche Funds. Exchanges are
made at net asset value without being assessed a contingent deferred sales
charge on the exchanged shares. To the extent that a shareholder exchanges
shares for Class B Shares of other Deutsche Funds, the time for which exchanged-
from shares were held will be credited against the time for which the exchanged-
for shares are required to be held for purposes of satisfying the applicable
holding period in respect of the contingent deferred sales charge. For more
information, see "Contingent Deferred Sales Charge."
Class C Shares
Class C shareholders may exchange all or some of their shares for Class C
Shares of the Deutsche Funds. Contact your financial intermediary regarding the
availability of other Class C 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 C 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 a broker or financial intermediary by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to: Deutsche Funds, Inc., c/o Federated Shareholder Services Company, 1099
Hingham Street, Rockland, MA 02370-3317.
Telephone Instructions
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with 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. (U.S. Eastern time) and must be received by the Fund
before that time for shares to be exchanged the same day. With respect to the
Global Bond Fund, instructions must be received by the Fund by the later of: (a)
the close of regular trading on the NYSE (generally 4:00 p.m. U.S. Eastern
time), or (b) the latest close of regular trading on any European securities
exchange on which the Fund's portfolio securities may trade. 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. 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. (U.S. Eastern time) and must be transmitted by the broker to a
Fund before 5:00 p.m. (U.S. 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. (U.S. Eastern time) in order for
shares to be redeemed at that day's net asset value. With respect to the Global
Bond Fund, requests must be received by the financial intermediary and
transmitted to the Fund by the later of: (a) the close of regular trading on the
NYSE (generally 4:00 p.m. U.S. Eastern time), or (b) the latest close of regular
trading on any European securities exchange on which the Fund's portfolio
securities may trade. 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 Transfer Agent. 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 an 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./R>
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.
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 such shareholder's 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 and
Class C 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 C Shares
Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those shares will be charged a contingent deferred
sales charge of 1% 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 C Shares of another Fund, at the time of purchase of the Class
C Shares of the exchanged-from Fund) or (ii) the net asset value of the redeemed
shares at the time of redemption.
Class A Shares, Class B Shares and Class C 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 and
Class C 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 and Class C 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 and Class C 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 such shareholder became a shareholder of
the exchanged-from Fund. Moreover, the contingent deferred sales charge will be
eliminated with respect to certain redemptions (see "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 IRA 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
such shareholder 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.
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 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. Backup withholding is not an additional tax; amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.
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. (U.S. Eastern
time) on Monday through Friday, except on the holidays listed under "Net Asset
Value" in the Statement of Additional Information. However, the Global Bond Fund
will compute its net asset value at the close of regular trading on the NYSE
(generally 4:00 p.m. U.S. Eastern time) but no earlier than the latest close of
regular trading on any European securities exchange on which the Fund's
portfolio securities may trade./R>
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 5800 Corporate Drive, Pittsburgh, PA 15237-7010; its toll-free
telephone number is 888-4-DEUTSCHE.
The Articles of Incorporation currently permit the Corporation to issue
17,500,000,000 shares of common stock, par value $0.001 per share, of which
250,000,000 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 10 of the Funds known as Class A Shares and Class
B Shares. Five of the Funds also offer Class C Shares and one Fund offers Class
Y 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. Shareholders in each Fund generally
vote in the aggregate and not by class, unless the law expressly requires
otherwise or the Directors determine that the matter to be voted upon affects
only the interests of shareholders of a particular Fund or class of 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 a 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 laws 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. (U.S. 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. (U.S.
Eastern time) on such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in the Portfolio
effected on such day, and (ii) the denominator of which is the aggregate net
asset value of the Portfolio as of 4:00 p.m. (U.S. Eastern time) on such day
plus or minus, as the case may be, the amount of the net additions to or
withdrawals from the aggregate investments in the Portfolio by all investors in
the Portfolio. The percentage so determined is then applied to determine the
value of the investor's interest in the Portfolio as of 4:00 p.m. (U.S. Eastern
time) on the following business day of the Portfolio. In the case of the Global
Bond Portfolio, the above-referenced calculations will be determined as of the
close of regular trading on the NYSE (generally 4:00p.m. U.S. Eastern time) but
no earlier than the latest close of regular trading on any European securities
exchange on which the Portfolio's portfolio securities may trade.
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. Individual shareholders will be subject to
federal income tax on distributions of net capital gains at capital gains rates
if designated as derived from the Fund's capital gains from property held for
more than one year. 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 could 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. Individual shareholders will
be subject to federal income tax on net capital gain at capital gains rates in
respect of shares held for more than one year. Net capital gain of a corporate
shareholder is taxed at the same rate as ordinary income. 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.
For further information on taxes, see "Taxes" in the Statement of Additional
Information.
ADDITIONAL INFORMATION
Each Fund sends to its shareholders annual and semi-annual 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.
APPENDIX A
Member States of the European Union
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Ireland,
Luxembourg, Netherlands, Portugal, Sweden, Spain,
United Kingdom
Organization for Economic Cooperation and Development Members
Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France,
Greece, Germany, Hungary, Iceland, Ireland, Italy, Japan, 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,
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.
Czech Republic
Prague
Hungary
Budapest
Slovakia
Bratislavia
Poland*
Warsaw
Switzerland
Basel, Geneva, Zurich
Exchanges in Non-European countries**
Argentina
Buenos Aires
Australia
ASX (Sydney, Hobart, Melbourne, Perth)
Brazil
Sao Paulo, Rio de Janiero
Canada
Toronto, Vancouver, Montreal
Chile
Santiago
Hong Kong
Hong Kong Stock Exchange
India***
Mumbai, Calcutta, Delhi, Madras
Indonesia
Jakarta Stock Exchange
Japan
Tokyo, Osaka, Nagoya, Kyoto, Fukuoto, Niigata, Sapporo, Hiroshima
Malaysia
Kuala Lumpur
Mexico
Mexico City
New Zealand
Wellington Christchurch/Invercargill, Auckland
Peru
Lima
Philippines
Manila
Singapore
Singapore Stock Exchange
South Africa
Johannesburg
* European Mid-Cap Fund, Global Bond Fund and European Bond Fund only.
** Not applicable to the European Mid-Cap Fund.
*** Not applicable to the German Equity Fund.
South Korea
Seoul
Taiwan***
Taipei
Thailand
Bangkok
USA
American Stock Exchange (AMEX), Boston, Chicago, Cincinnati, New York, New York
Stock Exchange (NYSE), Philadelphia, San Francisco Pacific Stock Exchange, Los
Angeles Pacific Stock Exchange
Regulated Markets in countries which are not members of 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.)
*European Mid-Cap Fund, Global Bond Fund and European Bond Fund only.
***Not applicable to the German Equity Fund.
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.
Deutsche European Mid-Cap Fund Deutsche German Equity Fund Deutsche Japanese
Equity Fund Deutsche Global Bond Fund Deutsche European Bond Fund Investment
Manager Deutsche Fund Management, Inc. 31 West 52nd Street New York, NY 10019
Distributor
Edgewood Services, Inc.
5800 Corporate Drive
Pittsburgh, PA 15237-5829
Transfer Agent
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600
Custodian
Investors Bank & Trust Co.
200 Clarendon Street
Boston, MA 02116
GO2179-02 (10/98)
Prospectus dated October 31, 1998 Deutsche Top 50 Europe Deutsche European
Mid-Cap Fund Deutsche German Equity Fund Deutsche European Bond Fund Class A
Shares, Class B Shares and Class C Shares
An Open-End
Management
Investment
Company
DEUTSCHE TOP 50 EUROPE
DEUTSCHE EUROPEAN MID-CAP FUND
DEUTSCHE GERMAN EQUITY FUND
DEUTSCHE EUROPEAN BOND FUND
(Class A Shares, Class B Shares and Class C Shares)
5800 Corporate Drive
Pittsburgh, PA 15237-7010
For information call toll-free 888-4-DEUTSCHE (888-433-8872)
This Prospectus relates to the Deutsche Top 50 Europe ("Top 50 Europe"),
Deutsche European Mid-Cap Fund ("European Mid-Cap Fund"), Deutsche German Equity
Fund ("German Equity Fund") (collectively, the "Equity Funds") and the Deutsche
European Bond Fund ("European Bond Fund"). The Equity Funds and the European
Bond Fund 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") (together with the Funds, the "Deutsche Funds"). The
investment objective of Top 50 Europe, 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 the
European Bond Fund 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 ("SEC") in a combined Statement of
Additional Information dated October 31, 1998. 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, CLASS B SHARES OR CLASS C 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.
Prospectus dated October 31, 1998
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary........................................ 2
Financial Highlights................................... 4
The Funds.............................................. 6
Investment Objective, Policies and Restrictions........ 6
Equity Funds.......................................... 6
European Bond Fund.................................... 7
All Funds............................................. 7
Risk Factors........................................... 10
Equity Investments.................................... 10
Fixed Income Securities............................... 10
Foreign Investments................................... 10
Emerging Markets (Top 50 Europe Portfolio and
Provesta Portfolio Only).............................. 10
Futures, Options and Warrants......................... 11
Local Securities Markets.............................. 11
Geographic Investment Emphasis........................ 11
Management of the Corporation and the Portfolio Trust.. 11
Manager............................................... 11
Adviser............................................... 12
Historical Performance of Corresponding DWS Funds..... 12
Portfolio Management.................................. 14
Administrator......................................... 14
Operations Agent...................................... 14
Administrative Agent.................................. 14
Distributor........................................... 14
Transfer Agent, Custodian and Fund Accountant......... 15
Year 2000 Statement................................... 15
Expenses.............................................. 15
Portfolio Brokerage................................... 16
Investing in the Funds................................. 16
Class A Shares........................................ 17
Class B Shares........................................ 17
Class C Shares........................................ 17
Other Share Differences............................... 17
Purchase of Shares..................................... 17
Investing in Class A Shares........................... 17
Investing in Class B Shares and Class C Shares........ 19
Conversion of Class B Shares.......................... 19
Purchasing Shares Through a Financial Intermediary.... 20
Purchasing Shares by Wire............................. 20
Purchasing Shares by Check............................ 20
Special Purchase Features.............................. 20
Systematic Investment Program......................... 20
Retirement Plans...................................... 20
Exchange Privilege..................................... 20
Class A Shares........................................ 20
Class B Shares........................................ 20
Class C Shares........................................ 20
Requirements for Exchange............................. 20
Tax Consequences...................................... 21
Making an Exchange.................................... 21
Telephone Instructions................................ 21
Redemption of Shares................................... 21
Redeeming Shares Through a Financial Intermediary..... 21
Redeeming Shares by Telephone......................... 21
Redeeming Shares by Mail.............................. 21
Special Redemption Features............................ 22
Systematic Withdrawal Program......................... 22
Contingent Deferred Sales Charge....................... 22
Class A Shares........................................ 22
Class B Shares........................................ 22
Class C Shares........................................ 22
Class A Shares, Class B Shares and Class C Shares..... 22
Elimination of Contingent Deferred Sales Charge....... 22
Account and Share Information.......................... 23
Certificates and Confirmations........................ 23
Accounts with Low Balances............................ 23
Dividends and Distributions............................ 23
Net Asset Value........................................ 23
Organization........................................... 23
Taxes.................................................. 24
Additional Information................................. 25
Appendix A............................................. 25
</TABLE>
EXPENSE SUMMARY
The following table summarizes estimated shareholder transaction and annual
operating expenses of Class A Shares, Class B Shares and Class C Shares of each
Fund, and the allocable operating expenses of their corresponding Portfolios.
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
<TABLE>
<CAPTION>
European
Equity Funds Bond Fund All Funds
Class A Class A Class B Class C
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage
of offering price) 5.50% 4.50% None 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) 0.00%(1) 5.00%(2) 1.00%(3)
Redemption Fees (as a percentage of
amount redeemed, if applicable) None None None None
Exchange Fees None None 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."
(2) In the first year declining to 1.00% in the sixth year and 0% thereafter.
(3) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of shares redeemed within one
year of their purchase date. For a more complete description, see "Contingent
Deferred Sales Charge."
</TABLE>
Expense Table
Annual Operating Expenses (After Expense Reimbursement)
(As a percentage of average net assets)
<TABLE>
<CAPTION>
Top 50 Equity Funds European
Europe (except Top 50 Europe) Bond Fund
Class B Class B Class B
and and and
Class A Class C Class A Class C Class A Class C
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees 1.00% 1.00% 0.85% 0.85% 0.75% 0.75%
12b-1 Fees
Service 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Distribution 0.00% 0.75% 0.00% 0.75% 0.00% 0.75%
Other Expenses
(after expense reimbursement) 0.35% 0.35% 0.50% 0.50% 0.30% 0.30%
Total Operating Expenses
(after expense reimbursement) 1.60% 2.35% 1.60% 2.35% 1.30% 2.05%
</TABLE>
EXPENSE SUMMARY (CONTINUED)
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:
<TABLE>
<CAPTION>
Top 50 Equity Funds European
Europe (except Top 50 Europe) Bond Fund
Class A Class B Class C Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 70 $ 74 $ 34 $70 $ 74 $ 34 $ 58 $ 72 $ 31
3 Years $103 $105 $ 73 $103 $105 $ 73 $ 84 $ 97 $ 64
5 Years $137 $148 $126 $137 $148 $126 $113 $133 $110
10 Years $235 $250 $250 $235 $250 $250 $195 $219 $219
An investor would pay the following expenses on
a $1,000 investment, assuming (1) a 5% annual
return and (2) no redemption at the end of each
time period:
1 Year $ 70 $ 24 $ 24 $70 $ 24 $ 24 $ 58 $ 21 $ 21
3 Years $103 $ 73 $ 73 $103 $ 73 $ 73 $ 84 $ 64 $ 64
5 Years $137 $126 $126 $137 $126 $126 $113 $110 $110
10 Years $235 $250 $250 $235 $250 $250 $195 $219 $219
</TABLE>
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in a
Fund would bear. Wire transferred redemptions of less than $5,000 may be subject
to additional fees. The fees and expenses included in "Other Expenses" are
estimated for each Fund's fiscal year ending August 31, 1999 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
the expenses of each Fund through at least August 31, 1999 to the extent
necessary to maintain such Fund's ratio of total operating expenses to average
annual net assets at the level indicated above. Absent reimbursement of
expenses, estimated "Other Expenses" for the first fiscal year of the Top 50
Europe, European Mid-Cap Fund, German Equity Fund and the European Bond Fund
were 15.28%, 17.76%, 72.51% and 453.22%, respectively, and "Total Operating
Expenses" were 16.53%, 18.86%, 73.61% and 454.22%, respectively, of the Fund's
average daily net assets attributed to Class A Shares, and 17.28%, 19.61%,
74.36% and 454.97%, respectively, of the Fund's average daily net assets
attributed to Class B Shares and Class C 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."
Because the fees paid under the 12b-1 Plan of the Fund are charged against the
assets of the Fund, long-term shareholders may indirectly pay an amount that is
more than the economic equivalent of the maximum front-end sales charge that
such Fund would be permitted to charge. The example is hypothetical; it is
included solely for illustrative purposes. It should not be considered a
representation of future performance; actual expenses may be more or less than
those shown.
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
For the period from Commencement of Operations to August 31, 1998(a)
Selected data for a Class A share of common stock outstanding throughout the
period.
The following table has been audited by PricewaterhouseCoopers LLP, the Funds'
independent accountants. Their report dated October 16, 1998, on the Funds'
financial statements for the period ended August 31, 1998, and on the following
table for the periods presented, is included in the Funds' Annual Report. This
table should be read in conjunction with the Funds' financial statements and
notes thereto, which is included in the Funds' Annual Report. The Annual Report
is incorporated by reference into and accompanies the Statement of Additional
Information. They may be obtained from the Funds free of charge. Class C Shares
were not offered to the public prior to September 1, 1998.
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche
Deutsche European German European
Top 50 Mid-Cap Equity Bond
Europe Fund Fund Fund
<S> <C> <C> <C> <C>
Net asset value at beginning of period
$12.50 $ 12.50 $ 12.50 $ 12.50
Investment operations:
Net investment income 0.02 0.01 0.02 0.19
Net realized and unrealized gain on investments and
foreign currency
allocated from corresponding
Deutsche Portfolio 0.51 1.71 1.94 0.58
Increase from investment operations
0.53 1.72 1.96 0.77
Distributions to Shareholders:
Dividends from net investment
income -- -- -- (0.12)
Total
distributions -- -- -- (0.12)
Net asset value at end of period $13.03 $ 14.22 $ 14.46 $ 13.15
Total Return (based on net asset value)(c)*
4.24% 13.76% 15.68% 6.17%
Ratios and Supplemental Data:
Net assets, end of period (000's)
$1,208 $ 2,402 $ 462 $ 28
Ratios to average net assets:
Expenses(b)**
1.60% 1.60% 1.60% 1.30%
Net investment income (b)** 0.50% 0.23% 0.75% 2.67%
(a) Commencement of operations: 10/2/97 10/17/97 10/17/97 10/17/97
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income to average net assets would have been as follows:
Expenses to average net assets** 16.53% 18.86% 73.61% 454.22%
Net investment loss to
average net assets** (14.43)% (17.03)% (71.26)% (450.25)%
</TABLE>
(c) Total Return based on net asset value, excluding the effect of shareholder
transaction charges, assumes a purchase of common stock at net asset value at
commencement of operations, reinvestment of distributions at net asset value
and a sale on the last day of the period, also at net asset value. During the
period, total return would have been lower had certain expenses not been
reimbursed by the Manager. * Not annualized
** Annualized
FINANCIAL HIGHLIGHTS (CONTINUED)
Deutsche Funds, Inc.
For the period from Inception Date to August 31, 1998(a)
Selected data for a Class B share of common stock outstanding throughout the
period.
The following table has been audited by PricewaterhouseCoopers LLP, the Funds'
independent accountants. Their report dated October 16, 1998, on the Funds'
financial statements for the period ended August 31, 1998, and on the following
table for the periods presented, is included in the Funds' Annual Report. This
table should be read in conjunction with the Funds' financial statements and
notes thereto, which is included in the Funds' Annual Report. The Annual Report
is incorporated by reference into and accompanies the Statement of Additional
Information. They may be obtained from the Funds free of charge. Class C Shares
were not offered to the public prior to September 1, 1998.
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche
Deutsche European German European
Top50 Mid-Cap Equity Bond
Europe Fund Fund Fund
<S> <C> <C> <C> <C>
Net asset value at beginning of
period $ 12.50 $ 12.50 $ 12.50 $ 12.50
Investment operations:
Net investment income (loss) (0.01) (0.02) (0.01) 0.08
Net realized and unrealized gain (loss) on investments and foreign
currency
allocated from corresponding
Deutsche Portfolio (0.84) 0.07 0.14 0.35
Increase (decrease) from investment operations
(0.85) 0.05 0.13 0.43
Distributions to Shareholders:
Dividends from net investment income
-- -- -- (0.11)
Total Distributions
-- -- -- (0.11)
Net asset value at end of period $ 11.65 $ 12.55 $ 12.63 $ 12.82
Total Return (based on net
asset value)(c)* (6.80)% 0.40% 1.04% 3.44%
Ratios and Supplemental Data:
Net assets, end of period (000's) $3,120 $ 4,287 $ 278 $ 85
Ratios to average net assets:
Expenses(b)** 2.35% 2.35% 2.35% 2.05%
Net investment income (loss)(b)** (0.46)% (0.70)% (0.19)% 2.38%
(a) Inception date: 3/30/98 3/30/98 3/16/98 6/25/98
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
Expenses to average net assets**
17.28% 19.61% 74.36% 454.97%
Net investment loss to average net assets**
(15.39)% (17.96)% (72.20)% (450.54)%
</TABLE>
(c) Total Return based on net asset value, excluding the effect of shareholder
transaction charges, assumes a purchase of common stock at net asset value at
inception date, reinvestment of distributions at net asset value and a sale on
the last day of the period, also at net asset value. During the period, total
return would have been lower had certain expenses not been reimbursed by the
Manager.
* Not annualized
** Annualized
THE FUNDS
Each Fund is a non-diversified, open-end management investment company and is a
series of shares of common stock of the Corporation (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 Top 50 Europe invests all of its investable assets in
the Top 50 Europe Portfolio (US Dollar)("Top 50 Europe Portfolio"); the European
Mid-Cap Fund invests all of its investable assets in the Provesta Portfolio (US
Dollar)("Provesta Portfolio"); the German Equity Fund invests all of its
investable assets in the Investa Portfolio (US Dollar)("Investa Portfolio"); and
the European Bond Fund invests all of its investable assets in the European Bond
Portfolio (US Dollar)("European Bond Portfolio"). The Top 50 Europe Portfolio,
Provesta Portfolio and Investa Portfolio are referred to herein individually, as
an "Equity Portfolio" and collectively, as the "Equity Portfolios." The Equity
Portfolios and the European Bond Portfolio 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 (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 "Directors, Trustees, and Officers" in the Statement of
Additional Information.
INVESTMENT OBJECTIVE, POLICIES
AND RESTRICTIONS
Each Fund seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Portfolio, an open-end management
investment 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.
Equity Funds
The investment objective of the Top 50 Europe, 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 Top 50 Europe Portfolio 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"), Poland, Switzerland, Slovakia, Czech Republic,
and Hungary.
The Top 50 Europe 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 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 CEEA, Poland, 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 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.
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, Investa
Portfolio's and Top 50 Europe Portfolio's investment in fixed income securities
(excluding bank deposits and money market instruments) will not exceed 20% of
such 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.
European Bond Fund
The investment objective of the European Bond Fund is to achieve steady, high
income.
The 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 issued by European issuers.
The European Bond Portfolio's investment in equity securities will not exceed
25% of the 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.
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:
. the Federal Republic of Germany ("Germany"), a special purpose fund of
Germany, a state of Germany, the European Union or a member state of the
Organization for Economic Cooperation and Development (an "OECD Member"),
. 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),
. 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,
. other debtors, if guaranteed as to the payment of interest and repayment of
principal by one of the aforementioned bodies, or
. 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 Top 50 Europe Portfolio's, Provesta
Portfolio's and the Investa Portfolio's overall 20% 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 rating categories of Moody's
Investors Service, Inc. ("Moody's"), currently Aaa, Aa, A and Baa, or of
Standard & Poor's ("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. Fixed income securities rated Baa by Moody's or BBB
by S&P have speculative characteristics. 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 Germany, the states of Germany, 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 (written) 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." 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 options, 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 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. A Portfolio may also 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 the official listing on an exchange.
The Top 50 Europe Portfolio does not currently intend to engage in foreign
currency transactions as an investment strategy. However, the Top 50 Europe
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 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) 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 net 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 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 in effect 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.
The Top 50 Europe Portfolio will invest at least 65% of its total assets in the
equity securities of issuers located in European countries. 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 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 or guaranteed by the U.S. government or its agencies or
instrumentalities.
Non-Fundamental Investment Restrictions
Each Portfolio is permitted to borrow money although, as an operating policy,
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 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 the 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.
On January 1, 1999, eleven of the fifteen Member States will have their currency
exchange rate irrevocably fixed to a single European currency, the euro. The
euro will become legal tender in those countries from this date. National
currencies will continue to circulate until they are replaced by euro coins and
bank notes on July 1, 2002. The pending unification of European currency and
decision by certain countries not to participate are likely to create
uncertainty in the European markets and thereby increase volatility of the
various currencies and securities. The European securities markets may become
less liquid. These events can adversely affect the Portfolios' investment and
performance, as detailed under "European Currency Unification" in the Statement
of Additional Information.
Emerging Markets (Top 50 Europe Portfolio and Provesta 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
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.
The risks involved in making investments in securities of issuers in emerging
markets have been underscored by recent events. For example, issuers in the Asia
region have experienced currency volatility, political instability and economic
declines in recent months. In response to these declines, Malaysia has recently
enacted currency exchange controls, restricting the repatriation of assets for a
period of one year. Earlier this year, Russia declared a moratorium on repayment
of its own debt, substantially devalued its currency and suspended the
government-sponsored foreign exchange market or its currency.
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 Contracts and Options on Futures 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 78% of the total volume as of August 31,
1998.
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, 40.83% in 1997, and 3.22% year-to-date as of
August 31, 1998.
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 as of June 30, 1998 represented 24.2% of total trading volume on the
German stock exchanges: Daimler Benz AG with DM 312 billion, Deutsche Bank AG
with DM 242 billion, Siemens AG with DM 190 billion, SAP AG with DM 175 billion,
and VWAG with DM 173 billion.
Geographic Investment Emphasis
From time to time, due to investment opportunities perceived by the Manager to
be attractive, a Portfolio or a Fund may invest a relatively larger portion of
its assets in the issuers of securities domiciled, or principally traded, in one
or more individual countries. In the event that such geographic investment
emphasis occurs, the relevant Portfolio or Fund could be subject to greater risk
due to unanticipated, and negative, economic events and/or market action in such
country or countries. Since inception the Provesta Portfolio has had more than a
majority of its assets, and the Top 50 Europe Portfolio has had a substantial
portion of its assets, invested in German securities. This overweighting may be
continued, or be changed, by the Manager in the future based on its perceptions
of market opportunities.
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, 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 $672.4 billion and 74,100 employees as of
June 30, 1998, Deutsche Bank AG is one of Europe's largest universal banks. It
is engaged in a wide range of financial services, including retail and
commercial banking, investment banking and insurance. 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, France, Poland and Italy. Together, DFH subsidiaries serve as
manager and/or investment adviser to more than 160 mutual funds, having
aggregate assets under management of more than the equivalent of $77 billion as
of June 30, 1998. DFH and its subsidiaries employ approximately 600
professionals and is one of the largest mutual fund operators 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 June 30, 1998. DFH and its subsidiaries
are known in the financial market as "DWS Group, Investment Group 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; 1997: 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 such Portfolio, which is computed daily and
paid monthly, equal to 1.00% (Top 50 Europe Portfolio), 0.85% (Provesta
Portfolio and Investa Portfolio) or 0.75% (European Bond Portfolio) of the
average daily net assets of the 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 0.75% of the average daily net assets of the
Top 50 Europe Portfolio, 0.60% of the average daily net assets of each of the
Provesta Portfolio and the Investa Portfolio and 0.50% of the average daily net
assets of the European 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 the corresponding Provesta and Investa Portfolios
except as noted below. The Provesta Portfolio and Investa Portfolio (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 Portfolio and
Investa Portfolio seek to accomplish this by duplicating to the extent practical
the portfolio holdings and transactions of Provesta and Investa. The Adviser
manages 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
during October of 1997 and did not have operating or performance history prior
to that time.
Information about the performance of the European Mid-Cap Fund, German Equity
Fund, and the two corresponding DWS Funds--Provesta (corresponding to the
European Mid-Cap Fund) and Investa (corresponding to the German Equity Fund)--is
set forth below. Although each Equity Fund and its corresponding Portfolio have
the same investment objectives, policies and 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 (each with differing
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 (net of fees) 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 total return for the Class A Shares of the
European Mid-Cap Fund and the German Equity Fund, and for securities indices
believed by the Adviser to be suitable for performance comparisons, for the
period from the commencement of operations on October 17, 1997 to August 31,
1998, and the average annualized total return for the Provesta and Investa
Funds, and of securities indices believed by the Adviser to be suitable for
performance comparisons with the Provesta Portfolio, Investa Portfolio and the
corresponding DWS Funds, for the three-, five- and ten-year periods ended August
31, 1998. The information in the table for the one-year period reflects actual
total returns for the first-year of operations of the European Mid-Cap Fund and
the German Equity Fund. One-year information for the corresponding DWS Funds
appears in a note to the table. These figures, which are unaudited, are based on
the actual gross investment performance of the DWS Funds with the adjustments
indicated below. These figures were not adjusted to reflect the expense ratios
of the Funds (described in the expense table under "Expenses") which are higher
than the actual expenses of the DWS Funds (which bear a combined fund management
and expense fee of 0.50% per annum of net assets). Any such adjustment would
reduce the performance shown below.
PROVESTA(1)
(Corresponding to the Provesta Portfolio
and the European Mid-Cap Fund)(6)
Total Return for the Periods Ended August 31, 1998
<TABLE>
<CAPTION>
Historical Performance
European in U.S. Dollars (unaudited) CDAX Index MSCI Europe
Mid-Cap Without With (in U.S. Dollars) (in U.S.Dollars)
Fund(6) Sales Load(2) Sales Load(3) (4) (5)
<S> <C> <C> <C> <C>
10/17/97 to
8/31/98 13.76% 7.48% 14.43% 12.47%
Provesta(1)
Three Years 16.02% 13.96% 16.63% 19.36%
Five Years 17.46% 16.21% 15.44% 15.73%
Ten Years 14.52% 13.90% 14.07% 12.88%
</TABLE>
(1) Net Assets as of 8/31/98 were DM 1,937 million ($1,096 million). Provesta
commenced investment operations in November 1985. The table reflects the
performance of the Provesta for the three-, five-, and ten-year periods ended
8/31/98. The performance of the Provesta for the period from 10/17/97 to
8/31/98, was 13.51% without the sales load, and 7.59% with the sales load.
(2) 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."
(3) Adjusted to reflect deduction for the maximum sales charge of 5.50%
applicable to Class A Shares.
(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 Bsrse AG.
(5) The Morgan Stanley Capital Market Europe Index ("MSCI Europe") is an
unmanaged, capitalization-weighted securities index which represents 60% of
the market capitalization of 13 European countries.
(6) The table reflects the actual total return of the European Mid-Cap Fund from
the commencement of operations on October 17, 1997.
INVESTA(1)
(Corresponding to the Investa Portfolio
and the German Equity Fund)(6)
Total Return for the Periods Ended August 31, 1998
<TABLE>
<CAPTION>
Historical Performance
German in U.S. Dollars (unaudited) DAX Index MSCI
Germany
Equity Without With (in U.S. Dollars) (in U.S.Dollars)
Fund(6) Sales Load(2) Sales Load(3) (4) (5)
<S> <C> <C> <C> <C>
10/17/97 to
8/31/98 15.68% 9.30% 18.32% 18.74%
Investa(1)
Three Years 22.50% 20.33% 21.35% 18.18%
Five Years 18.60% 17.34% 18.53% 16.09%
Ten Years 14.78% 14.17% 15.86% 13.97%
</TABLE>
(1) Assets as of 8/31/98 were DM 4,943 million ($2,798 million). Investa
commenced investment operations in December 1956. The table reflects the
performance of the Investa for the three-, five-, and ten-year periods ended
8/31/98. The performance of the Investa for the period from 10/17/97 to
8/31/98, was 23.06% without the sales load, and 16.64% with the sales load.
(2) 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."
(3) Adjusted to reflect deduction for the maximum sales charge of 5.50%
applicable to Class A Shares.
(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 Bsrse AG.
(5) The Morgan Stanley Capital Market Germany Index ("MSCI Germany") is an
unmanaged, capitalization-weighted securities index which represents 60% of
the market capitalization of Germany.
(6) The table reflects the actual total return of the German Equity Fund from
the commencement of operations on October 17, 1997.
The above results are shown in U.S. dollars on the basis of conversion at the
rate 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
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); and (2) 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.
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
Portfolio and Investa Portfolio 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
Klaus Martini and Elisabeth Weisenhorn are 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 the Top 50 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 9.0 billion ($5.0
billion) as of June 30, 1998. Ms. Weisenhorn also serves as 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 13 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 18.4 billion ($10.1
billion) as of June 30, 1998. Mr. Martini and Ms. Weisenhorn are based at DWS
Group's office in Frankfurt, Germany.
Heinz-Wilhelm Fesser is senior portfolio manager for the European Bond
Portfolio. Mr. Fesser also serves as the senior portfolio manager for the Global
Bond Portfolio, an additional series of the Portfolio Trust. 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 23.6
billion ($13.1 billion) as of June 30, 1998.
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, except that during the first two years of the
agreement (commencing in 1997), 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 Fund's operation and $125,000 for
the second year will be paid to the Operations Agent and the Administrator.
Operations Agent
Under an operations agency agreement with the Portfolio Trust, Federated
Services Company serves as Operations Agent to the Portfolios. 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 and the Administrator.
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.
The Portfolio Trust has entered into an administrative agreement with IBT
(Cayman). As Administrative Agent of the Portfolios, IBT (Cayman) receives a fee
from each Portfolio, which is computed daily and paid monthly at an annual rate
of 0.025% on the first $200 million, 0.02% on the next $800 million and 0.01% on
assets in excess of $1 billion, subject to a minimum of $40,000 during the first
year of the Portfolio's operations, $45,000 in the second year of operations and
$50,000 in the third year.
Distributor
Edgewood serves as principal Distributor for shares of each Fund. Edgewood is
located at 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-5829. 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, Inc. and an affiliate of Federated Services Company.
Securities laws may require certain financial intermediaries 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 and 1.0% of the net asset
value of Class C 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 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 and Class C Shares are subject to a distribution
plan (the "Distribution Plan") and Class A Shares, Class B Shares and Class C
Shares are subject to a service plan (the "Service Plan").
Under the Distribution Plan, Class B Shares and Class C 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 and Class
C Shares to finance any activity which is principally intended to result in the
sale of Class B Shares and Class C 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' and Class
C 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, Class B Shares and Class C Shares a
fee computed at an annual rate of 0.25% of the average daily net assets of each
such class of shares. The services 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, 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 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, Class B Shares and Class C 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, 1001 Liberty
Avenue, 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.
Year 2000 Statement
Like other mutual funds and business organizations worldwide, the Funds' service
providers (among them, the Manager, Adviser, Distributor, Administrator,
Custodian and Transfer Agent) must ensure that their computer systems are
adjusted to properly process and calculate date-related information from and
after January 1, 2000. Many software programs and, to a lesser extent, the
computer hardware in use today cannot distinguish the year 2000 from the year
1900. Such a design flaw could have a negative impact in the handling of
securities trades, pricing and accounting services. The Funds and their service
providers are actively working on necessary changes to computer systems to deal
with the year 2000 issue and the Funds' service providers have represented to
the Fund that they believe their systems will be year 2000 compliant when
required. Analysis continues regarding whether the financial impact of
instituting a year 2000 compliant program will have any financial impact on the
Funds' operations.
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,
1999, 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%,
1.30%, 2.35%, 2.05%, 2.35% and 2.05% of the average annual net assets of Class A
Shares of the Equity Funds, Class A Shares of the European Bond Fund, Class B
Shares of the Equity Funds, Class B Shares of the European Bond Fund, Class C
Shares of the Equity Funds, and Class C Shares of the European Bond Fund,
respectively. There is no assurance that DFM will continue this reimbursement
beyond August 31, 1999.
Expenses of Class A Shares, Class B Shares and Class C Shares
Holders of Class A Shares, Class B Shares and Class C 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, Class B Shares and Class C
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, Class B Shares and Class C 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, Class B
Shares and Class C 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, Class B
Shares and Class C Shares; registration fees paid to the SEC and to state
securities commissions as attributable to holders of Class A Shares, Class B
Shares and Class C Shares; expenses related to administrative personnel and
services as required to support holders of Class A Shares, Class B Shares and
Class C Shares; legal fees relating solely to Class A Shares, Class B Shares or
Class C Shares; and Directors' fees incurred as a result of issues related
solely to Class A Shares, Class B Shares or Class C Shares.
Portfolio Brokerage
Although each Portfolio does not intend to invest for the purpose of seeking
short-term profits, securities in the Portfolios will be sold whenever the
Adviser believes it is appropriate to do so in light of the investment objective
of each Fund and each Portfolio, without regard to the length of time a
particular security may have been held. The estimated annual portfolio turnover
rate for the Top 50 Europe Portfolio, Provesta Portfolio, Investa Portfolio, and
the European Bond Portfolio is generally not expected to exceed 80%, 180%, 80%
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 rate of portfolio turnover of each Portfolio may exceed
that of certain other mutual funds with the same investment objective. 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. See "Taxes."
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 ("Deutsche Agent") may
act as one of the agents of the Portfolios in the purchase and sale of portfolio
securities, futures contracts or options on futures contracts when, in the
judgment of the Adviser, that Deutsche Agent will be able to obtain a price and
execution at least as favorable as other qualified brokers. As one of the
primary brokers or futures commission merchants, as applicable. As one of the
primary brokers used by the Portfolios, Deutsche Bank AG or its affiliates
receives brokerage commissions from each Portfolio, and may recieve compensation
for executing futures transactions.
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.
From commencement of operations through August 31, 1998, the Top 50 Europe
Portfolio, Provesta Portfolio, and the Investa Portfolio paid the following
aggregate brokerage commissions, respectively: $39,913, $41,688, and $21,095. No
brokerage commissions were paid by the European Bond Portfolio.
INVESTING IN THE FUNDS
Each Fund offers investors three 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% for the Equity Funds and 4.50% for the European Bond Fund at the time
of purchase. 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" and except for shares purchased without a sales charge that are
redeemed within one year of purchase as described under "Contingent Deferred
Sales Charge--Class A Shares"). Certain purchases of Class A Shares are not
subject to a sales charge. See "Purchase of Shares--Investing in Class A
Shares." 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:
<TABLE>
<CAPTION>
Contingent
Year of Redemption Deferred
After Purchase Sales Charge
<S> <C>
First 5.00%
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>
Class C Shares
Class C Shares are sold without an initial sales charge, but a contingent
deferred sales charge of 1.00% will be charged on assets redeemed within the
first full 12 months following purchase.
Other Share Differences
Class B Shares and Class C Shares also bear a fee pursuant to a Distribution
Plan, adopted in accordance with Rule 12b-1 under the 1940 Act, while Class A
Shares do not bear such a fee. Class A Shares, Class B Shares and Class C 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
and Class C 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 in the case of Class B Shares) 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
("NYSE") 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. 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 and may
separately charge a fee for Fund transactions).
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 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
<TABLE>
<CAPTION>
Sales Charge Dealer
as a Percentage of Concession as
Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
<S> <C> <C> <C>
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 but less
than $2 million None None 1.00%*
$2 million but less
than $5 million None None 0.80%*
$5 million but less
than $50 million None None 0.50%*
$50 million but less
than $100 million None None 0.25%*
$100 million or more None None 0.15%*
</TABLE>
* See "Dealer Concession" below.
European Bond Fund
<TABLE>
<CAPTION>
Sales Charge Dealer
as a Percentage of Concession as
Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
<S> <C> <C> <C>
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% 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 but less
than $2 million None None 1.00%*
$2 million but less
than $5 million None None 0.80%*
$5 million but less
than $50 million None None 0.50%*
$50 million but less
than $100 million None None 0.25%*
$100 million or more None None 0.15%*
</TABLE>
* See "Dealer Concession" below.
Dealer Concession
Dealer concession will be paid to dealers who initiate and are responsible for
purchases of $1 million or more. The dealer concession may be changed from time
to time and any portion of the sales charge which is not paid to a dealer will
be retained by the Distributor. However, the Distributor may offer to pay
dealers up to 100% of the sales charge retained by it. The Distributor, at its
expense, may provide additional promotional incentives to dealers. Such payments
may take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees to attend informational meetings about
the Funds or other special events at recreational type facilities, or items of
material value. 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:
. sales charge waiver;
. quantity discounts and accumulated purchases;
. concurrent purchases;
. signing a 13-month letter of intent;
. using the reinvestment privilege; or
. 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
intermediaries 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 intermediaries 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 acts 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 Bank Securities, Inc., Deutsche
Bank Trust Company, or any of their 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. Investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of such investment
advisers or financial planners who place trades for their own accounts if the
accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker or agent;
8. Retirement and deferred compensation plans and trusts used to fund those
plans, including, but not limited to, those defined in section 401(a),
403(b), or 457 of the Code and "rabbi trusts;"
9. Qualified separate accounts maintained by an insurance company pursuant to
the laws of any state or territory of the United States;
10. 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;
11. 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 the shareholder 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 the shareholder's 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 the shareholder's 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 in escrow (in shares) up to the maximum
sales charge of the total amount intended to be purchased 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 the shareholder's financial
intermediary of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems 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 the investor's 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 and Class C Shares
Class B Shares and Class C Shares are sold at their net asset value next
determined after an order is received. While Class B Shares and Class C Shares
are sold without an initial sales charge, under certain circumstances described
under "Contingent Deferred Sales Charge" a contingent deferred sales charge may
be applied by the Distributor at the time Class B Shares and Class C 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 ("IRS") 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 a 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. (U.S. Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (U.S. 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. (U.S. 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.
The financial intermediary which maintains investor accounts in Class B Shares
or Class C 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 Number 0110-0143-8; BNF Account Number 570000307. For Credit to: (Fund
Name) (Fund Class); (Fund Number, this number can be found on the account
statement or by contacting the Fund); Account Number; Trade Date and Order
Number; Group Number or Dealer Number; 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 Individual
Retirement Accounts ("IRAs"). 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. Class A 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."
Class C Shares
Class C shareholders may exchange all or some of their shares for Class C Shares
of the Deutsche Funds. Contact your financial intermediary regarding the
availability of other Class C 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 C 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 a broker or financial intermediary by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to: Deutsche Funds, Inc., c/o Federated Shareholder Services Company, 1099
Hingham Street, Rockland, MA 02370-3317.
Telephone Instructions
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with 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. (U.S. Eastern time) and must be received by the Fund
before that time for shares to be exchanged the same 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. 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. (U.S. Eastern time) and must be transmitted by the broker to a
Fund before 5:00 p.m. (U.S. 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. (U.S. 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 Transfer Agent. 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 an 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.
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 such shareholder's 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 and
Class C 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 C Shares
Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those shares will be charged a contingent deferred
sales charge of 1% 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 C Shares of another Fund, at the time of purchase of the Class
C Shares of the exchanged-from Fund) or (ii) the net asset value of the redeemed
shares at the time of redemption.
Class A Shares, Class B Shares and Class C 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 and
Class C 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 and Class C 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 and Class C 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 such shareholder became a shareholder of
the exchanged-from Fund. Moreover, the contingent deferred sales charge will be
eliminated with respect to certain redemptions (see "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 IRA 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
such shareholder 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 European Bond Fund.
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 European Bond Fund. 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 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. Backup withholding is not an additional tax; amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.
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. (U.S. 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 5800 Corporate Drive, Pittsburgh, PA 15237-7010; its toll-free
telephone number is 888-4-DEUTSCHE.
The Articles of Incorporation currently permit the Corporation to issue
17,500,000,000 shares of common stock, par value $0.001 per share, of which
250,000,000 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 10 of the Funds known as Class A Shares and Class
B Shares. Five of the Funds also offer Class C Shares and one Fund offers Class
Y 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. Shareholders in each Fund generally
vote in the aggregate and not by class, unless the law expressly requires
otherwise or the Directors determine that the matter to be voted upon affects
only the interests of shareholders of a particular Fund or class of 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 a 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 laws 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. (U.S. 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. (U.S.
Eastern time) on such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in the Portfolio
effected on such day, and (ii) the denominator of which is the aggregate net
asset value of the Portfolio as of 4:00 p.m. (U.S. Eastern time) on such day
plus or minus, as the case may be, the amount of the net additions to or
withdrawals from the aggregate investments in the Portfolio by all investors in
the Portfolio. The percentage so determined is then applied to determine the
value of the investor's interest in the Portfolio as of 4:00 p.m. (U.S. Eastern
time) on the following business day of the Portfolio.
Whenever the Corporation is requested to vote on a matter pertaining to 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. Individual shareholders will be subject to
federal income tax on distributions of net capital gains at capital gains rates
if designated as derived from the Fund's capital gains from property held for
more than one year. 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 could 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. Individual shareholders will
be subject to federal income tax on net capital gain at capital gains rates in
respect of shares held for more than one year. Net capital gain of a corporate
shareholder is taxed at the same rate as ordinary income. 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.
For further information on taxes, see "Taxes" in the Statement of Additional
Information.
ADDITIONAL INFORMATION
Each Fund sends to its shareholders annual and semi-annual 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.
APPENDIX A
Member States of the European Union
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Ireland,
Luxembourg, Netherlands, Portugal, Sweden, Spain, United Kingdom
Organization for Economic Cooperation and Development Members
Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France,
Greece, Germany, Hungary, Iceland, Ireland, Italy, Japan, 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,
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.
Czech Republic
Prague
Hungary
Budapest
Slovakia
Bratislavia
Poland**
Warsaw
Switzerland
Basel, Geneva, Zurich
Exchanges in Non-European countries*
Argentina
Buenos Aires
Australia
ASX (Sydney, Hobart, Melbourne, Perth)
Brazil
Sao Paulo, Rio de Janiero
Canada
Toronto, Vancouver, Montreal
Chile
Santiago
Hong Kong
Hong Kong Stock Exchange
India**
Mumbai, Calcutta, Delhi, Madras
Indonesia
Jakarta Stock Exchange
Japan
Tokyo, Osaka, Nagoya, Kyoto, Fukuoto, Niigata, Sapporo, Hiroshima
Malaysia
Kuala Lumpur
Mexico
Mexico City
New Zealand
Wellington Christchurch/Invercargill, Auckland
Peru
Lima
Philippines
Manila
Singapore
Singapore Stock Exchange
South Africa
Johannesburg
South Korea
Seoul
Taiwan**
Taipei
Thailand
Bangkok
USA
American Stock Exchange (AMEX), Boston, Chicago, Cincinnati, New York, New York
Stock Exchange (NYSE), Philadelphia, San Francisco Pacific Stock Exchange, Los
Angeles Pacific Stock Exchange
Regulated Markets in countries which are not members of 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 Mid-Cap Fund.
** Not applicable to the Deutsche German Equity Fund.
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.
Deutsche Top 50 Europe
Deutsche European Mid-Cap Fund
Deutsche German Equity Fund
Deutsche European Bond Fund
Investment Manager
Deutsche Fund Management, Inc.
31 West 52nd Street
New York, NY 10019
Distributor
Edgewood Services, Inc.
5800 Corporate Drive
Pittsburgh, PA 15237-5829
Transfer Agent
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600
Custodian
Investors Bank & Trust Co.
200 Clarendon Street
Boston, MA 02116
GO2179-09 (10/98)
prospectus
dated October 31, 1998
Deutsche US Money Market Funds
Class A and Class B Fund and Class Y Fund
An Open-End
Management
Investment
Company
DEUTSCHE US MONEY MARKET FUNDS
5800 Corporate Drive
Pittsburgh, PA 15237-7010
For information call toll-free 888-4-DEUTSCHE (888-433-8872)
The Deutsche US Money Market Fund (the "Class A and Class B Fund") and the
Deutsche Institutional US Money Market Fund (the "Class Y Fund")(collectively,
the "Funds") are series of the Deutsche Funds, Inc., an open-end management
investment company organized as a Maryland corporation (the "Corporation"). The
Class A and Class B Fund offers two classes of shares. Class A Shares are
offered at net asset value; Class B Shares are designed primarily for temporary
investment as part of a special investment program in Class B Shares of other
series of the Corporation (together with the Funds, the "Deutsche Funds"), and
unlike shares of most money market funds, are offered at net asset value, but
with a declining contingent deferred sales charge on redemptions made within six
years.
The investment objective of the Funds is to achieve as high a level of current
income as is consistent with the preservation of capital and the maintenance of
liquidity. Each Fund seeks to maintain a constant net asset value. There can be
no assurance that the investment objective of the Funds will be achieved or that
the net asset value per share will not vary.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, each Fund seeks to achieve its investment objective by investing
all of its investable assets in the US Money Market Portfolio (US Dollar) (the
"Portfolio"), a corresponding diversified open-end management investment
company. The Portfolio is a series of the Deutsche Portfolios (the "Portfolio
Trust") and has the same investment objective as the Funds. The Funds invest in
the Portfolio through the Hub and Spoke/(R)/ master-feeder investment fund
structure. "Hub and Spoke/(R)/" is a registered service mark of Signature
Financial Group, Inc.
The Portfolio is managed by Deutsche Fund Management, Inc. ("DFM" 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 ("SEC") in a Statement of Additional
Information dated October 31, 1998. This information is incorporated herein by
reference and is available without charge from the Funds' transfer agent,
Federated Shareholder Services Company, by calling toll-free 888-4-DEUTSCHE.
INVESTMENTS IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, DEUTSCHE BANK AG OR ANY OTHER BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. THERE CAN BE NO ASSURANCE THAT
THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated October 31, 1998
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary........................................ 2
Financial Highlights................................... 4
The Funds.............................................. 5
Investment Objective, Policies and Restrictions........ 5
Loans of Portfolio Securities......................... 6
Reverse Repurchase Agreements......................... 6
Floating and Variable Rate Instruments................ 6
Investment Restrictions............................... 6
Fundamental Investment Restrictions................... 6
Non-Fundamental Investment Restrictions............... 6
Management of the Corporation and the Portfolio Trust.. 7
Manager............................................... 7
Adviser............................................... 7
Administrator......................................... 7
Operations Agent...................................... 8
Administrative Agent.................................. 8
Distributor........................................... 8
Transfer Agent, Custodian and Fund Accountant......... 9
Year 2000 Statement................................... 9
Expenses.............................................. 9
Portfolio Transactions................................ 9
Purchase of Shares..................................... 9
Purchasing Shares Through a Financial Intermediary.... 10
Purchasing Shares by Wire............................. 10
Purchasing Shares by Check............................ 10
Special Purchase Features.............................. 10
Systematic Investment Program......................... 10
Retirement Plans...................................... 10
Conversion of Class B Shares........................... 10
Exchange Privilege..................................... 10
CLASS A SHARES 10
Class B Shares........................................ 10
Class Y Shares........................................ 11
Requirements for Exchange............................. 11
Tax Consequences...................................... 11
Making an Exchange.................................... 11
Telephone Instructions................................ 11
Redemption of Shares................................... 11
Redeeming Shares Through a Financial Intermediary..... 11
Redeeming Shares by Telephone......................... 11
Redeeming Shares by Mail.............................. 11
Special Redemption Features............................ 12
Systematic Withdrawal Program......................... 12
Contingent Deferred Sales Charge....................... 12
Class A Shares........................................ 12
Class B Shares........................................ 12
Class A Shares and Class B Shares..................... 12
Elimination of Contingent Deferred Sales Charge....... 12
Account and Share Information.......................... 12
Certificates and Confirmations........................ 12
Accounts with Low Balances............................ 13
Dividends and Distributions............................ 13
Net Asset Value........................................ 13
Organization........................................... 13
Taxes.................................................. 14
Additional Information................................. 14
Appendix A............................................. 15
</TABLE>
EXPENSE SUMMARY
The following table summarizes estimated shareholder transaction and annual
operating expenses of the Funds and the allocable operating expenses of the
Portfolio. The Directors of the Corporation believe that the aggregate per share
expenses of each Fund and the allocable operating expenses of the Portfolio will
be approximately equal to and may be less than the expenses that the Fund would
incur if it retained the services of an investment adviser and invested its
assets directly in portfolio securities. Actual expenses may vary. A
hypothetical example based on the summary is also shown. For more information
concerning the expenses of each Fund and the Portfolio, see "Management of the
Corporation and the Portfolio Trust."
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
Class A Class B Class Y
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None None None
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Reinvested Dividends
(as a percentage of offering
price) None None None
Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds, as
applicable) 0.00%(1) 5.00%(2) None
Redemption Fees (as a percentage of
amount redeemed, if applicable) None None None
Exchange Fees None None None
</TABLE>
(1) Class A Shares acquired upon the exchange of Class A Shares of another
Deutsche Fund purchased without an initial sales charge either (i) based on
an initial investment of $1,000,000 or more or (ii) with proceeds of a
redemption of shares of an unaffiliated investment company purchased or
redeemed with a sales charge and not distributed by Edgewood, may be charged
a contingent deferred sales charge of 1.00% for redemptions made within one
full year of purchase. See "Contingent Deferred Sales Charge."
(2) In the first year declining to 1.00% in the sixth year and 0.00%
thereafter.
Expense Table
Annual Operating Expenses (After Expense Reimbursement)
(As a percentage of average net assets)
<TABLE>
<CAPTION>
Class A Class B Class Y
<S> <C> <C> <C>
Advisory Fees 0.15% 0.15% 0.15%
12b-1 Fees
Service 0.25% 0.25% None
Distribution None 0.75% None
Other Expenses (after expense reimbursement) 0.15% 0.15% 0.05%
Total Operating Expenses (after expense reimbursement) 0.55% 1.30% 0.20%
</TABLE>
EXPENSE SUMMARY(CONTINUED)
Example
An investor would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Class A Class B Class Y
<S> <C> <C> <C>
1 Year $ 6 $ 65 $ 2
3 Years $18 $ 75 $ 6
5 Years $31 $ 95 $11
10 Years $69 $136 $26
</TABLE>
An investor would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2)no redemption at the end of each time period:
<TABLE>
<CAPTION>
Class A Class B Class Y
<S> <C> <C> <C>
1 Year $ 6 $ 13 $ 2
3 Years $18 $ 41 $ 6
5 Years $31 $ 71 $11
10 Years $69 $136 $26
</TABLE>
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in a
Fund would bear. Wire transferred redemptions of less than $5,000 may be subject
to additional fees. The fees and expenses included in "Other Expenses" are
estimated for each Fund's fiscal year ending August 31, 1999 and include (i) the
fees paid to the Administrator, Administrative Agent, Operations Agent, Transfer
Agent, Fund Accounting Agent and Custodian (as each are defined below); (ii)
amortization of organizational expenses; and (iii) other usual and customary
expenses of each Fund and the Portfolio. The Manager, Administrator, Operations
Agent, Transfer Agent, Administrative Agent, Fund Accounting Agent and Custodian
have voluntarily agreed to waive a portion of their respective fees and/or
reimburse expenses with respect to the Class Y Fund, for at least the first year
operations, to the extent necessary to maintain such Fund's ratio of total
operating expenses to average annual net assets at the level indicated above.
The Manager has voluntarily agreed to reimburse the expenses of the Class A and
Class B Fund, for at least the first year of operations, to the extent necessary
to maintain the ratio of total operating expenses to average annual net assets
of the Class A Shares and Class B Shares at the respective levels indicated
above. Absent reimbursement of expenses, "Other Expenses" for Class A Shares,
Class B Shares and the Class Y Fund for the Funds' first fiscal year were
43.40%, 0.00% and 0.00%, respectively, and "Total Operating Expenses" were
43.80%, 0.00% and 0.00%, respectively, of the average daily net assets of the
class or Fund. For a more detailed description of contractual fee arrangements,
including waivers and expense reimbursements, see "Management of the Corporation
and the Portfolio Trust" and "Expenses." In connection with the above example,
investors should note that $1,000 is less than the minimum investment
requirement for the Funds. See "Purchase of Shares." Because the fees paid under
the 12b-1 Plan of the Class A and Class B Fund are charged against the assets of
such Fund, long-term shareholders may indirectly pay an amount that is more than
the economic equivalent of the maximum front-end sales charge that such Fund
would be permitted to charge. The example is hypothetical; it is included solely
for illustrative purposes. It should not be considered a representation of
future performance; actual expenses may be more or less than those shown.
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
For the period from Commencement of Operations to August 31, 1998(a)
Selected data for a Class A Share of common stock outstanding throughout the
period.
The following table has been audited by PricewaterhouseCoopers LLP, the Funds'
independent accountants. Their report dated October 16, 1998, on the Funds'
financial statements for the period ended August 31, 1998, and on the following
table for the periods presented, is included in the Funds' Annual Report. This
table should be read in conjunction with the Funds' financial statements and
notes thereto, which is included in the Funds' Annual Report. The Annual Report
is incorporated by reference into and accompanies the Statement of Additional
Information. They may be obtained from the Funds free of charge. Class B Shares
of the Class A and Class B Fund, and the Class Y Fund were not offered to the
public prior to August 31, 1998. <TABLE> <CAPTION>
Deutsche
US
Money
Market
Fund
<S> <C>
Net asset value at beginning of period $1.00
Investment operations:
Net investment income 0.02
Distributions to shareholders:
Net investment income (0.02)
Net asset value at end of period $1.00
Total Return (based on net asset value)(c)* 2.46%
Ratios and Supplemental Data:
Net assets, end of period (000's) $727
Ratio to average net assets:
Expenses**(b) 0.55%
Net investment income**(b) 5.04%
(a) Commencement of operations: 3/25/98
</TABLE>
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income to average net assets would have been as follows:
<TABLE>
<S> <C>
Expenses to average net assets** 43.80%
Net investment income to average net assets** (38.21)%
</TABLE>
(c) Total Return based on net asset value, excluding the effect of shareholder
transactions charges, assumes a purchase of common stock at net asset value at
commencement of operations, reinvestment of distributions at net asset value
and a sale on the last day of the period, also at net asset value. During the
period, total return would have been lower had certain expenses not been
reimbursed by the Manager. * Not annualized ** Annualized
THE FUNDS
Each Fund is a diversified, open-end management investment company and is a
series of shares of common stock of the Corporation (see "Organization"). The
investment objective of each Fund is to achieve as high a level of current
income as is consistent with the preservation of capital and the maintenance of
liquidity.
Each Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio, which has the same investment objective as
the Funds. The Portfolio is an open-end management investment company and a
series of shares of beneficial interest in the Deutsche Portfolios, a trust
organized under the laws of the State of New York (see "Organization)."
Shares of the Funds are sold continuously by the Funds' distributor, Edgewood
Services, Inc. ("Edgewood" or the "Distributor".) The Class A and Class B Fund
requires a minimum initial investment of $5,000. The minimum subsequent
investment for the Class A and Class B Fund is $500. The minimum initial
investment to purchase Class Y Fund shares is $5 million, unless: (a) the
investor has invested at least $5 million in the aggregate among any class of
shares of any Deutsche Fund; or (b) the investor has, in the opinion of the
Manager, adequate intent and availability of funds to reach a future level of
investment of $5 million among any class of shares of the Deutsche Funds. There
is no minimum for subsequent purchases in the Class Y Fund. See "Purchase of
Shares." If a shareholder reduces his or her investment in a Fund to less than
the applicable minimum investment, the investment is subject to mandatory
redemption. See "Account and Share Information--Accounts with Low Balances."
Proceeds from the sale of shares of each Fund are invested in the Portfolio,
which then invests its assets in accordance with its investment objective and
policies. Deutsche Bank Securities Investment Management Inc. is the investment
adviser of the Portfolio ("DBSIM" or the "Adviser"). The Manager and the Adviser
are indirect subsidiaries of Deutsche Bank AG. Federated Services Company is the
administrator of the Funds (the "Administrator") and the operations agent of the
Portfolio ("Operations Agent"). IBT Fund Services (Canada) Inc. ("IBT (Canada)")
is the fund accounting agent of the Funds and the Portfolio ("Fund Accounting
Agent"). Federated Shareholder Services Company is the transfer agent and
dividend disbursing agent of the Funds ("Transfer Agent"). IBT Trust Company
(Cayman) Ltd. ("IBT (Cayman)") is the administrative agent of the Portfolio
("Administrative Agent"). Investors Bank & Trust Company ("IBT") is the
custodian of the Funds and the Portfolio ("Custodian"). The Board of Directors
of the Corporation and the Board of Trustees of the Portfolio Trust provide
broad supervision over the affairs of the Funds and of the Portfolio,
respectively. The Directors who are not "interested persons" of the Corporation
as defined in the Investment Company Act of 1940 (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 "Directors, Trustees, and Officers" in the Statement of
Additional Information.
INVESTMENT OBJECTIVE, POLICIES
AND RESTRICTIONS
The investment objective of each Fund is to achieve as high a level of current
income as is consistent with the preservation of capital and the maintenance of
liquidity. The net asset value of each of the Funds' shares is expected to
remain constant at $1.00. However, a contingent deferred sales charge is imposed
under certain circumstances. There can be no assurance that the investment
objective of the Funds will be achieved or that the net asset value per share
will not vary.
Each Fund attempts to achieve its investment objective by investing all its
investable assets in the Portfolio, a series of the Portfolio Trust which has
the same investment objective as the Fund. Since the investment characteristics
and experience of the Funds will correspond directly with those of the
Portfolio, the discussion in this Prospectus focuses on the investments and
investment policies of the Portfolio. The policies employed by the Funds and the
Portfolio in their efforts to achieve this objective are described below.
Additional information about the investment policies of the Funds and the
Portfolio appears in the Statement of Additional Information under "Investment
Objectives and Policies." No Fund represents a complete investment program.
Investments for the Portfolio mature or are deemed to mature within 397 days
from the date of purchase and the average maturity of the investments held by
the Portfolio (on a dollar-weighted basis) is 90 days or less. Currently, the
Portfolio's investment policy is to invest only in money market instruments,
including securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities, and bank obligations (such as certificates of deposit,
fixed time deposits and bankers' acceptances), commercial paper, repurchase
agreements, when-issued and delayed delivery securities, bonds issued by U.S.
corporations and obligations of certain supranational organizations and foreign
governments and their agencies and instrumentalities. (See Appendix A for more
information.) The Portfolio may also enter into reverse repurchase agreements.
The Portfolio will not invest more than 5% of its total assets in securities of
a single issuer other than U.S. government securities. All of the assets of the
Portfolio are invested in securities which are rated within the highest rating
category for short-term debt obligations by at least two (unless only rated by
one) nationally recognized statistical rating organizations (e.g., Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's ("S&P")) or, if
unrated, are of comparable quality as determined by or under the direction of
the Portfolio Trust's Board of Trustees.
Although the assets of the Portfolio are invested in high-quality, short-term
securities, the Portfolio is subject to interest rate risk and credit risk which
cause fluctuations in the amount of income accrued on the Portfolio's
investments and therefore in the daily dividend paid by the Funds and, in
extreme cases, could cause the net asset value per share of the Funds to deviate
from $1.00 per share. Interest rate risk refers to the price fluctuation of a
debt security in response to changes in interest rates. In general, short-term
securities have relatively small fluctuations in price in response to general
changes in interest rates. Credit risk refers to the likelihood that an issuer
will default on interest and principal payments. High-quality securities of
short maturities generally have relatively minimal credit risk.
Subject to the restriction on the Funds' and the Portfolio's investments in
securities that are not readily marketable (see "Non-Fundamental Investment
Restrictions"), the Portfolio may purchase restricted securities, including
securities eligible for resale under Rule 144A under the Securities Act of 1933
(the "Securities Act") and commercial paper issued in reliance upon the
exemption from registration in Section 4(2) of the Securities Act. Restricted
securities are securities subject to contractual or legal restrictions on
resale, such as those arising from an issuer's reliance upon certain exemptions
from registration under the Securities Act.
Loans of Portfolio Securities
Loans of portfolio securities up to 30% of the total value of the Portfolio are
permitted and may be entered into for not more than one year. These loans must
be secured continuously by cash or equivalent collateral or by an irrevocable
letter of credit in favor of the Portfolio at least equal at all times to 100%
of the market value of the securities loaned plus accrued income. By lending
securities, the Portfolio's income can be increased by its continuing to receive
income on the loaned securities as well as by the opportunity to receive
interest on the collateral. Any appreciation or depreciation in the market price
of the borrowed securities which occurs during the term of the loan inures to
the Portfolio and its investors.
Reverse Repurchase Agreements
Reverse repurchase agreements may be entered into only with a "primary
dealer" (as designated by the Federal Reserve Bank of New York) in U.S.
government securities. This is an agreement in which the Portfolio agrees to
repurchase securities sold by it at a mutually agreed upon time and price. As
such, it is viewed as the borrowing of money for the Portfolio. Proceeds of
borrowings under reverse repurchase agreements are invested for the Portfolio.
This is the speculative factor known as "leverage." If interest rates rise
during the term of a reverse repurchase agreement utilized for leverage, the
value of the securities to be repurchased for the Portfolio as well as the value
of securities purchased with the proceeds will decline. In these circumstances,
the Portfolio's entering into reverse repurchase agreements may have a negative
impact on the ability to maintain the Funds' net asset value of $1.00 per share.
Proceeds of a reverse repurchase transaction are not invested for a period which
exceeds the duration of the reverse repurchase agreement. A reverse repurchase
agreement is not entered into for the Portfolio if, as a result, more than
one-third of the market value of the Portfolio's total assets, less liabilities
other than the obligations created by reverse repurchase agreements, is engaged
in reverse repurchase agreements. In the event that such agreements exceed, in
the aggregate, one-third of such market value, the amount of the Portfolio's
obligations created by reverse repurchase agreements is reduced within three
days thereafter (not including Sundays and holidays) or such longer period as
the SEC may prescribe. A segregated account with the Custodian is established
and maintained for the Portfolio with liquid assets in an amount at least equal
to the Portfolio's purchase obligations under its reverse repurchase agreements.
Such a segregated account consists of liquid, high grade debt securities marked
to the market daily, with additional liquid assets added when necessary to
insure that at all times the value of such account is equal to the purchase
obligations.
Floating and Variable Rate Instruments
Certain of the obligations that the Portfolio may purchase have a floating or
variable rate of interest. Such obligations bear interest at rates that are not
fixed, but vary with changes in specified market rates or indices, such as the
Prime Rate, and at specified intervals. Certain of such obligations may carry a
demand feature that would permit the holder to tender them back to the issuer at
par value prior to maturity. The Portfolio will limit its purchase of floating
and variable rate obligations to those of the same quality as it otherwise is
allowed to purchase. The Adviser will monitor on an ongoing basis the ability of
an issuer of a demand instrument to pay principal and interest on demand. The
Portfolio's right to obtain payment at par on a demand instrument could be
affected by events occurring between the date the Portfolio elects to demand
payment and the date payment is due that may affect the ability of the issuer of
the instrument to make payment when due, except when such demand instruments
permit same day settlement. To facilitate settlement, these same day demand
instruments may be held in book-entry form at a bank other than the Custodian,
subject to a subcustodian agreement approved by the Portfolio Trust between that
bank and the Custodian.
To the extent that floating and variable rate instruments without demand
features are not readily marketable, they will be subject to the investment
restriction on the Portfolio's investment in securities that are not readily
marketable.
Investment Restrictions
The investment objective of each Fund and the Portfolio, together with the
fundamental investment restrictions described below and in the Statement of
Additional Information, except as noted, are deemed fundamental policies, i.e.,
they may be changed only with the approval of the holders of a majority of the
outstanding voting securities of the Fund and the Portfolio. Each Fund has the
same investment restrictions as the Portfolio, except that the Fund may invest
all of its investable assets in the Portfolio. References below to the
Portfolio's investment restrictions also include the Funds' investment
restrictions. Any other investment policies of the Portfolio and each Fund
described herein or in the Statement of Additional Information are not
fundamental and may be changed without shareholder approval.
Each Fund will comply with Rule 2a-7 under the 1940 Act, including the
eligibility, diversification, quality and maturity limitations imposed by the
Rule. A more detailed description of Rule 2a-7 is set forth in the Funds'
Statement of Additional Information under "Investment Objective and Policies."
Fundamental Investment Restrictions
Each Fund is classified as "diversified" under the 1940 Act, which means that
at least 75% of its total assets is represented by cash; securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities; and other
securities limited in respect of any one company to an amount no greater than 5%
of the Fund's total assets (other than securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities). As a matter of operating
policy, the foregoing fundamental policy would give the Portfolio the ability to
invest, with respect to 25% of its assets, more than 5% of its assets in any one
issuer only in the event that Rule 2a-7 is amended in the future.
The Portfolio may not purchase securities or other obligations of issuers
conducting their principal business activity in the same industry if its
investments in such industry would equal or exceed 25% of the value of the
Portfolio's total assets, except this limitation shall not apply to investments
in securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities or certificates of deposit, bankers' acceptances or time
deposits.
Non-Fundamental Investment Restrictions
The Portfolio will not purchase more than 10% of the principal amount of all
outstanding debt obligations of any one issuer (other than securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities). In
addition, except for the investment of all of each Fund's assets in the
Portfolio, not more than 10% of the net assets of a Fund or the Portfolio, as
the case may be, may be invested in securities that are subject to legal or
contractual restrictions on resale or in securities which are not readily
marketable, provided that there is no limitation with respect to or arising out
of investment in (a) securities that have legal or contractual restrictions on
resale but have a readily available market or (b) securities that are not
registered under the Securities Act but which can be sold to qualified
institutional buyers in accordance with Rule 144A under the Securities Act.
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see "Investment
Restrictions" in the Statement of Additional Information.
MANAGEMENT OF THE CORPORATION
AND THE PORTFOLIO TRUST
The Board of Directors of the Corporation and the Board of Trustees of the
Portfolio Trust provide broad supervision over the affairs of each Fund and the
Portfolio, respectively. Each Fund has retained the services of Federated
Services Company as Administrator, Federated Shareholder Services Company as
Transfer Agent, IBT (Canada) as Fund Accounting Agent and IBT as Custodian but
has not retained the services of an investment manager or adviser since each
Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Portfolio has retained the services of
DFM as Manager, Federated Services Company as Operations Agent, IBT (Canada) as
Fund Accounting Agent, IBT (Cayman) as Administrative Agent and IBT as
Custodian. DFM has retained the services of DBSIM as Adviser of the
Portfolio.
Manager
The Portfolio Trust has retained the services of DFM as investment manager to
the Portfolio. DFM, with principal offices at 31 West 52nd Street, New York, New
York 10019, is a Delaware corporation and registered investment adviser under
the Advisers Act of 1940.
DFM is a wholly-owned subsidiary of Deutsche Fonds Holding GmbH ("DFH"), a
company with limited liability organized under the laws of Germany and a
consolidated subsidiary of Deutsche Bank AG, a major global banking institution.
With total assets the equivalent of $672.4 billion and 74,100 employees as of
June 30, 1998, Deutsche Bank AG is one of Europe's largest universal banks. It
is engaged in a wide range of financial services, including retail and
commercial banking, investment banking and insurance. Deutsche Bank AG and its
affiliates may have commercial lending relationships with companies whose
securities may be held by the Portfolio.
Subject to the overall supervision of the Portfolio Trust's Trustees, DFM is
responsible for the day-to-day investment decisions, the execution of portfolio
transactions and the general management of the Portfolio's investments and
provides certain supervisory services. Under its investment management agreement
with the Portfolio Trust (the "Management Agreement"), DFM is permitted, subject
to the approval of the Board of Trustees of the Portfolio Trust, to delegate to
a third party responsibility for management of the investment operations of the
Portfolio. DFM has delegated this responsibility to the Adviser. DFM retains
overall responsibility, however, for supervision of the investment management
program for the Portfolio. See "Manager" in the Statement of Additional
Information.
As compensation for the services rendered and related expenses borne by DFM
under the Management Agreement with the Portfolio Trust with respect to the
Portfolio, DFM receives a fee from the Portfolio, which is computed daily and
may be paid monthly, equal to 0.15% of the average daily net assets of the
Portfolio on an annualized basis for the Portfolio's then-current fiscal year.
DFM has agreed to reimburse certain expenses of the Class A and Class B Fund,
and, together with certain other service providers to the Class Y Fund and the
Portfolio, to waive and/or reimburse expenses of the Class Y Fund, for at least
one year from the respective Fund's commencement of operations. See "Expenses."
Adviser
Pursuant to an investment advisory agreement ("Advisory Agreement") among
DFM, DWS International Portfolio Management GmbH and DBSIM, the Adviser provides
investment advice and portfolio management services to the Portfolio. Subject to
the overall supervision of DFM, the Adviser conducts the day-to-day investment
decisions of the Portfolio, arranges for the execution of portfolio transactions
and furnishes a continuous investment program for the Portfolio.
The Adviser is an SEC-registered investment adviser and an indirect subsidiary
of Deutsche Bank AG, a major German banking institution. The offices of the
Adviser are located at 31 West 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 0.1125% of the average daily net assets of the
Portfolio on an annualized basis for the Portfolio's then-current fiscal year.
Administrator
Under a master agreement for administration services with the Corporation,
Federated Services Company serves as Administrator to the Funds. In connection
with its responsibilities as Administrator, Federated Services Company, among
other things (i) prepares, files and maintains the Funds' governing documents,
registration statements and regulatory documents; (ii) prepares and coordinates
the printing of publicly disseminated documents; (iii) monitors declaration and
payment of dividends and distributions; (iv) projects and reviews the Funds'
expenses; (v) performs internal audit examinations; (vi) prepares and
distributes materials to the Directors of the Corporation; (vii) coordinates the
activities of all service providers; (viii) monitors and supervises collection
of tax reclaims; and (ix) prepares shareholder meeting materials.
As Administrator, Federated Services Company receives a fee from each Fund,
which is computed daily and may be paid monthly, at an annual rate, for at least
the Fund's first year of operations, equal to 0.045% of the average daily net
assets of the Fund on an annualized basis for the Fund's then-current fiscal
year. If, after the Funds' first year of operations, the average net assets of
the Portfolio (excluding assets attributable to the Class Y Fund) have not
reached $325 million, the Administrator's fee would be increased to an annual
rate of 0.065% of the average daily net assets of each Fund up to $200 million
and 0.0525% of the average daily net assets of each Fund greater than $200
million. The Administrator has agreed, together with the Manager and the Adviser
and certain other service providers to the Class Y Fund and the Portfolio, to
waive a portion of their fees and/or reimburse expenses of the Fund under
certain circumstances for at least one year from the Fund's commencement of
investment operations. See "Expenses."
Operations Agent
Under an operations agency agreement with the Portfolio Trust, Federated
Services Company serves as Operations Agent to the Portfolio. In connection with
its responsibilities as Operations Agent, Federated Services Company, among
other things (i) prepares governing documents, registration statements and
regulatory filings; (ii) performs internal audit examinations; (iii)prepares
expense projections; (iv) prepares materials for the Trustees of the Portfolio
Trust; (v) coordinates the activities of all service providers; (vi)conducts
compliance training for the Adviser; (vii) prepares investor meeting materials;
and (viii) monitors and supervises collection of tax reclaims.As Operations
Agent of the Portfolio, Federated Services Company receives a fee from the
Portfolio, which is computed daily and paid monthly, at an annual rate, for at
least the Portfolio's first year of operations, equal to 0.015% of the average
daily net assets of the Portfolio. If, after the Portfolio's first year of
operations, the average net assets of the Portfolio (excluding assets
attributable to the Class Y Fund) have not reached $325 million, the Operations
Agent's fee would be increased to an annual rate of 0.035% of the average daily
net assets of the Portfolio.
See "Expenses."
Administrative Agent
Under an administration agreement with the Portfolio Trust, IBT (Cayman)
provides certain services to the Portfolio, including (i) filing and maintaining
the governing documents, registration statements and other regulatory filings;
(ii) maintaining a telephone line; (iii) approving annual expense budgets; (iv)
authorizing expenses; (v) distributing materials to the Trustees of the
Portfolio Trust; (vi) authorizing dividend distributions; (vii) maintaining
books and records; (viii) filing tax returns; and (ix) maintaining the investor
register.
The Portfolio Trust has entered into an administrative agreement with IBT
(Cayman). As Administrative Agent of the Portfolios, IBT (Cayman) receives a fee
from each Portfolio, which is computed daily and paid monthly at an annual rate
of 0.025% on the first $200 million, 0.02% on the next $800 million and 0.01% on
assets in excess of $1 billion, subject to a minimum of $40,000 during the first
year of the Portfolio's operations, $45,000 in the second year of operations and
$50,000 in the third year.
Distributor
Edgewood serves as principal Distributor for shares of each Fund. Edgewood is
located at 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-5829. 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, Inc. and an affiliate of Federated Services Company.
Under a distribution and services plan adopted in accordance with Rule 12b-1 of
the 1940 Act, Class B Shares are subject to a distribution plan (the
"Distribution Plan") and Class A Shares and Class B Shares are subject to a
service plan (the "Service Plan").
Under the Distribution Plan, Class B Shares will pay a fee to the Distributor in
an amount computed at an annual rate of 0.75% of the average daily net assets of
the Fund represented by Class B Shares to finance any activity which is
principally intended to result in the sale of Class B Shares subject to the
Distribution Plan. Because distribution fees to be paid by a Fund to the
Distributor may not exceed an annual rate of 0.75% of Class B Shares' average
daily net assets, it will take the Distributor a number of years to recoup the
expenses, including payments to other dealers, it has incurred for its sales
services and distribution-related support services pursuant to the Distribution
Plan.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the Distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the Distributor, including amounts expended
by the Distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the Distributor's overhead expenses. However, the Distributor may be able to
recover such amounts or may earn a profit from future payments made by shares
under the Distribution Plan.
Under the Service Plan, the Class A and Class B Fund pays to DFM for the
provision of certain services to the holders of Class A Shares and Class B
Shares a fee computed at an annual rate of 0.25% of the average daily net assets
of each such class of shares. The services 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, and services related to the
maintenance of shareholder accounts, and other services. DFM determines the
amounts to be paid to financial intermediaries, the schedules of such fees and
the basis upon which such fees will be paid. Securities laws may require certain
Financial Intermediaries such as depository institutions to register as dealers.
DFM may pay financial intermediaries a shareholder services fee of up to 0.25%
of the amount invested in Class A Shares and Class B Shares by employees
participating in qualified or non-qualified employee benefit plans or other
programs where (i) the employers or affiliated employers maintaining such plans
or programs have a minimum of 250 employees eligible for participation in such
plans or programs, or (ii) such plan's or program's aggregate investment in the
Deutsche Funds or certain other products made available by the Distributor to
such plans or programs is $1,000,000 or more ("Eligible Benefit Plans"). Shares
in the Deutsche Funds then held by Eligible Benefit Plans will be aggregated to
determine the fee payable. DFM reserves the right to cease paying these fees at
any time. DFM may pay such fees from its own funds in addition to amounts
received from the Funds under the Service Plan, including past profits or any
other source available to it. Such payments are subject to a reclaim from the
financial intermediary should the assets leave the plan or program within 12
months after purchase.
Furthermore, with respect to Class A Shares and Class B Shares, the Distributor
may offer to pay a fee from its own assets to Financial Intermediaries as
financial assistance for providing substantial sales services, distribution-
related support services, or shareholder services. The support may include
sponsoring sales, educational and training seminars for their employees,
providing sales literature, and engineering computer software programs that
emphasize the attributes of the Class A and Class B Fund. Such assistance may be
predicated upon the amount of shares the financial intermediary sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial intermediary.
Transfer Agent, Custodian and Fund Accountant
Federated Shareholder Services Company, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, serves as the Transfer Agent and dividend
disbursing agent for the Funds. IBT, 200 Clarendon Street, Boston, Massachusetts
02116, acts as the Custodian of the Funds' and the Portfolio's assets.
Securities held for the Portfolio may be held by a sub-custodian bank approved
by the Trustees or Custodian of the Portfolio Trust. IBT (Canada) provides fund
accounting services to the Funds and the Portfolio, including (i) calculation of
the daily net asset value for the Funds and the Portfolio; (ii) monitoring
compliance with investment portfolio restrictions, including all applicable
federal securities and other regulatory requirements; and (iii) monitoring the
Funds' and Portfolio's compliance with the requirements applicable to a
regulated investment company under the Internal Revenue Code (the "Code").
Year 2000 Statement
Like other mutual funds and business organizations worldwide, the Funds' service
providers (among them, the Manager, Adviser, Distributor, Administrator,
Custodian and Transfer Agent) must ensure that their computer systems are
adjusted to properly process and calculate date-related information from and
after January 1, 2000. Many software programs and, to a lesser extent, the
computer hardware in use today cannot distinguish the year 2000 from the year
1900. Such a design flaw could have a negative impact in the handling of
securities trades, pricing and accounting services. The Funds and their service
providers are actively working on necessary changes to computer systems to deal
with the year 2000 issue and the Funds' service providers have represented to
the Fund that they believe their systems will be year 2000 compliant when
required. Analysis continues regarding whether the financial impact of
instituting a year 2000 compliant program will have any financial impact on the
Funds' operations.
Expenses
In addition to the fees payable under the various agreements discussed above,
each Fund and the Portfolio are responsible for usual and customary expenses
associated with their respective operations. Such expenses may include
organization expenses, legal fees, audit fees and expenses, insurance costs, the
compensation and expenses of the Directors or Trustees, as the case may be,
registration fees under applicable securities laws, fund accounting fees,
custodian fees and extraordinary expenses. For each Fund, such expenses also
include transfer, registrar and dividend disbursing costs, and the expenses of
printing and mailing reports and notices and proxy statements to Fund
shareholders. For the Portfolio, such expenses also include brokerage expenses.
As discussed above, if, after the Portfolio's first year of operations, the
average net assets of the Portfolio have not reached $325 million, Federated
Services Company, as Administrator and Operations Agent to the Funds and the
Portfolio, respectively, may increase the annual rate of its asset-based fees.
See "Administrator" and "Operations Agent." In addition, in such circumstance
IBT and IBT (Canada), as Custodian and Fund Accounting Agent, respectively, to
the Funds and the Portfolio, may increase the asset-based fees charged to the
Portfolio. Such increase by the Custodian and Fund Accounting Agent could add
fees of as much as 0.015% per annum of the average annual assets of the Funds
and the Portfolio.
The Manager, Adviser, Administrator, Operations Agent, Administrative Agent,
Transfer Agent, Fund Accounting Agent and Custodian have voluntarily agreed to
waive a portion of their respective fees and/or reimburse expenses with respect
to the Class Y Fund, for at least the Fund's first year of operations, to the
extent necessary to maintain such Fund's ratio of total operating expenses to
average annual net assets at not more than 0.20%. The Manager has agreed to
reimburse the expenses of the Class A and Class B Fund, for at least the Fund's
first year of operations, to the extent necessary to maintain the ratio of total
operating expenses to average annual net assets of the Class A shares and Class
B shares at 0.55% and 1.30%, respectively. There can be no assurance that the
Manager or the other service providers will continue such fee waivers or
reimbursement beyond one year.
Expenses of Class A Shares and Class B Shares
Holders of Class A Shares and Class B Shares bear their allocable portion of
the Class A and Class B Fund's expenses along with their allocable share of the
Portfolio's operating expenses. At present, the only expenses which are
allocated specifically to Class A Shares and Class B Shares as classes are
expenses under the Distribution Plan and expenses under the Service Plan.
However, the Directors reserve the right to allocate certain other expenses to
holders of Class A Shares and Class B Shares ("Class Expenses"). In any case,
Class Expenses would be limited to: distribution fees; shareholder services
fees; transfer agent fees as identified by the Transfer Agent as attributable to
holders of Class A Shares and Class B Shares; printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders as attributable to holders of
Class A Shares and Class B Shares; registration fees paid to the SEC and to
state securities commissions as attributable to holders of Class A Shares and
Class B Shares; expenses related to administrative personnel and services as
required to support holders of Class A Shares and Class B Shares; legal fees
relating solely to Class A Shares and Class B Shares; and Directors' fees
incurred as a result of issues related solely to Class A Shares and Class B
Shares.
Portfolio Transactions
Although the Portfolio generally holds investments until maturity and does not
seek profits through short-term trading, it may dispose of any portfolio
security prior to its maturity if it believes such disposition advisable. Money
market securities are generally traded on a net basis and do not normally
involve brokerage commissions or transfer taxes. See "Portfolio Transactions" in
the Statement of Additional Information.
PURCHASE OF SHARES
Shares of the Funds are sold on days on which the New York Stock Exchange
("NYSE") and Federal Reserve Bank are open. Shares of each Fund may be purchased
as described below either through a financial intermediary (such as a bank or
broker/dealer which has a sales agreement with the Distributor) or by sending a
wire or a check directly to a Fund, with a minimum initial investment of $5,000
for the Class A and Class B Fund; or $5 million for the Class Y Fund, unless:
(a) the investor has invested at least $5 million in the aggregate among any
class of shares of any Deutsche Fund; or (b) the investor has, in the opinion of
the Manager, adequate intent and availability of funds to reach a future level
of investment of $5 million among any class of shares of Deutsche Funds.
Additional investments in the Class A and Class B Fund can be made for as little
as $500. There is no minimum for subsequent purchases in the Class Y Fund. The
minimum initial investments for retirement plan participants is $1,000 and the
subsequent investment for retirement plan participants is $100. (financial
intermediaries may impose different minimum investment requirements on their
customers and may separately charge a fee for Fund transactions.) Class B Shares
may be purchased, without an initial sales charge but subject to a contingent
deferred sales charge (see "Contingent Deferred Sales Charge"), only upon an
exchange of Class B Shares of another Deutsche Fund.
In connection with any sale, the Distributor may from time to time offer certain
items of nominal value to any shareholder or investor. The Funds reserve the
right to reject any purchase request. An account must be established through a
financial intermediary or by completing, signing, and returning the new account
form available from the Funds before shares can be purchased.
Purchasing Shares Through a Financial Intermediary
An investor may call a financial intermediary (such as a bank or an
investment dealer, which has a sales agreement with the Distributor) to place an
order to purchase shares. Orders placed through a financial intermediary are
considered received when the Fund is notified of the purchase order. Shares are
purchased at a price equal to their net asset value next determined after
receipt of the purchase order. Purchase orders must be received by the Funds
before 3:00 p.m. (U.S. Eastern time) in order for the purchased shares to be
entitled to dividends declared that day. It is the financial intermediary's
responsibility to transmit orders promptly.
The financial intermediary which maintains investor accounts in Class B Shares
with the Class A and Class B Fund must do so on a fully disclosed basis unless
it accounts for share ownership periods used in calculating the contingent
deferred sales charge (see "Contingent Deferred Sales Charge").
Purchasing Shares by Wire
Once an account has been established, shares may be purchased by Federal Reserve
wire by calling the Transfer Agent before 3:00 p.m. (U.S. Eastern time). Payment
by federal funds must be received before 4:00 p.m. (U.S. Eastern time) in order
to begin earning dividends that same day. All information needed will be taken
over the telephone, and the order is considered received when IBT receives
payment by wire. Federal funds should be wired as follows: Investors Bank &
Trust, Boston, MA: ABA Number 0110-0143-8; BFN Account Number 570000307; For
Credit to: (Fund Name) (Fund Class); (Fund Number, this number can be found on
the account statement or by contacting the Funds); Account Number; Trade Date
and Order Number; Group Number or Dealer Number; Nominee or Institution Name;
and ABA Number [#]. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to your
account representative at the telephone number listed on your account statement.
Purchasing Shares by Check
Once an account has been established, shares may be purchased by sending a check
made payable to the name of the specific Fund (designate class of shares and
account number) to: Deutsche Funds, Inc., P.O. Box 8612, Boston, MA 02266-8612.
Please include an account number on the check. Orders by mail are considered
received when payment by check is converted into federal funds (normally the
business day after the check is received).
SPECIAL PURCHASE FEATURES
Systematic Investment Program
Once an account has been opened with the minimum initial investment,
shareholders of Class A Shares may add to their investment on a regular basis in
a minimum amount of $100. Under this program, funds may be automatically
withdrawn periodically from the shareholder's checking account at an Automated
Clearing House ("ACH") member and invested in the Fund at the net asset value
next determined after an order is received by the Fund. Shareholders should
contact their Financial Intermediary or the Fund directly to participate in this
program.
Retirement Plans
Class A and Class B Fund shares can be purchased as an investment for
retirement plans or Individual Retirement Accounts ("IRAs"). For further
details, contact the Funds and consult a tax adviser.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or about the
fifteenth of the month eight full years after the initial purchase date in any
one Deutsche Fund. Until conversion, Class B Shares will have a higher expense
ratio and pay lower dividends than Class A Shares due to the higher 12b-1
fees.
EXCHANGE PRIVILEGE
Class A Shares
Class A shareholders may exchange all or some of their shares for Class A
shares of other Deutsche Funds at relative net asset value plus a sales charge
to the extent required by that Deutsche Fund. Sales charges will not be imposed
to the extent the exchange is made with proceeds from the previous redemption of
Class A Shares of another Deutsche Fund that imposed a sales charge on the
initial purchase. None of the Deutsche Funds imposes any additional fees on
exchanges. However, Class A Shares acquired upon the exchange of Class A Shares
of another Deutsche Fund purchased without an initial sales charge (i) based on
an initial investment of $1,000,000 or more or (ii) with proceeds of a
redemption of shares of an unaffiliated investment company purchased or redeemed
with a sales charge and not distributed by Edgewood may be charged a contingent
deferred sales charge of 1.00% for redemptions made within one full year of the
original purchase.
Class B Shares
Class B shareholders may exchange all or some of their shares for Class B
Shares of other Deutsche Funds. Contact your financial intermediary regarding
the availability of other Class B Shares in the Deutsche Funds. Exchanges are
made at net asset value without being assessed a contingent deferred sales
charge on the exchanged shares. To the extent that a shareholder exchanges
shares for Class B shares of other Deutsche Funds, the time for which exchanged-
from shares were held will be credited against the time for which the exchanged-
for shares are required to be held for purposes of satisfying the applicable
holding period in respect of the contingent deferred sales charge. For more
information, see "Contingent Deferred Sales Charge."
Class Y Shares
Class Y shareholders have no exchange privileges.
Please contact your financial intermediary directly or the Distributor for
information on and prospectuses for the Deutsche Funds into which your shares
may be exchanged free of charge.
Requirements for Exchange
Shareholders using this privilege must exchange shares having a net asset
value equal to the minimum investment requirements of the Deutsche Fund into
which the exchange is being made. The shareholder must receive a prospectus of
the Deutsche Fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
proceeds invested in the same class of shares of the other Fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified in advance of the modification or termination of the exchange
privilege.
Tax Consequences
An exchange will be treated as a taxable sale for federal income tax purposes
and any gain or loss realized will be subject to the rules applicable to
reinvestments. See "Taxes" below for additional information.
Making an Exchange
Instructions for exchanging may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Class A and
Class B Fund may have difficulty in making exchanges by telephone through
brokers and other financial intermediaries during times of drastic economic or
market changes. If a shareholder cannot contact a broker or financial
intermediary by telephone, it is recommended that an exchange request be made in
writing and sent by overnight mail to: Deutsche Funds, Inc., c/o Federated
Shareholder Services Company, 1099 Hingham Street, Rockland, MA 02370-3317.
Telephone Instructions
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the
Funds. If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Funds. If reasonable procedures
are not followed, the responsible party may be liable for losses due to
unauthorized or fraudulent telephone instructions. Shares may be exchanged
between two Funds by telephone only if the two Deutsche Funds have identical
shareholder registrations.
Any shares held in certificated form cannot be exchanged by telephone but must
be forwarded to Federated Shareholder Services Company and deposited to the
shareholder's account before being exchanged. Telephone exchange instructions
are recorded and will be binding upon the shareholder. Such instructions will be
processed as of 2:00 p.m. (U.S. Eastern time) and must be received by the Fund
before that time for shares to be exchanged the same day. Shareholders
exchanging into the Class A and Class B Fund will begin receiving dividends the
following business day. This privilege may be modified or terminated at any
time.
REDEMPTION OF SHARES
Shares are redeemed at their net asset value, next determined after a Fund
receives the redemption request, less any applicable contingent deferred sales
charge. Redemptions will be made on days on which each Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
as described below.
Redeeming Shares Through a Financial Intermediary
Shares of the Funds may be redeemed by calling your financial intermediary to
request the redemption. Shares will be redeemed at the net asset value next
determined after a Fund receives the redemption request from the financial
intermediary, less any applicable contingent deferred sales charge. The
financial intermediary is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary fees
and commissions may be charged by the financial intermediary for this service.
Redemption requests must be received by the Fund before 2:00 p.m. (U.S. Eastern
time) in order for redemption proceeds to be disbursed the same day.
Redeeming Shares by Telephone
Shares may be redeemed in any amount by calling a Fund provided the Fund has
received a properly completed authorization form. These forms can be obtained
from the Transfer Agent. Proceeds will be mailed in the form of a check, to the
shareholder's address of record or by wire transfer to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
Wire transfer requests received before 2:00 p.m. (U.S. Eastern time) will be
processed the same day, but will not include that day's dividend. Wire transfer
requests received after that time will be processed the following business day,
but will include that day's dividend. The minimum amount for a wire transfer is
$1,000. Proceeds from redeemed shares purchased by check or through an ACH will
not be wired until the payment has cleared. Proceeds from redemption requests
received on holidays when wire transfers are restricted will be wired the
following business day.
Telephone instructions will be recorded. If reasonable procedures are not
followed by a Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, redemption by mail (see "Redeeming Shares by Mail") should be
considered. If at any time a Fund shall determine it necessary to terminate or
modify the telephone redemption privilege, shareholders would be promptly
notified.
Redeeming Shares by Mail
Shares may be redeemed in any amount by mailing a written request to: Deutsche
Funds, Inc., c/o Federated Shareholder Services Company, P.O. Box 8612, Boston,
MA 02266-8612. If share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: Fund Name and the share class name; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days after receipt of a proper written redemption request. Dividends are
paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with a Fund, or a redemption payable other than to the
shareholder of record, must have their signatures guaranteed by a commercial or
savings bank, trust company or savings association whose deposits are insured by
an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined by the Securities and Exchange Act of 1934,
as amended. The Funds do not accept signatures guaranteed by a notary public.
The Funds and the Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. The Funds may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Funds and the Transfer Agent reserve the right
to amend these standards at any time without notice.
SPECIAL REDEMPTION FEATURES
Systematic Withdrawal Program
The Systematic Withdrawal Program permits the Class A and Class B Fund
shareholders to receive payments of a predetermined amount from accounts with a
$10,000 minimum at the time the shareholder elects to participate in the
Systematic Withdrawal Program. Under this program, shares are redeemed to
provide for periodic withdrawal payments in an amount directed by the
shareholder.
Depending upon the amount of the withdrawal payments, redemptions may reduce,
and eventually deplete, the shareholder's investment in the Fund. For this
reason, payments under this program should not be considered as yield or income
on the shareholder's investment in the Fund. A shareholder may apply for
participation in this program through such shareholder's financial intermediary.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales charge upon
redemption of their shares under the following circumstances:
Class A Shares
No initial sales charge applies, but a contingent deferred sales charge of 1%
is imposed on certain redemptions of shares issued in exchange for Class A
Shares of another Deutsche Fund within one year of the original purchase. See
"Exchange Privilege." Any applicable contingent deferred sales charge will be
imposed on the lesser of the net asset value of the shares of the exchanged-from
Deutsche Fund at the time of purchase or the net asset value of the redeemed
shares at the time of redemption.
Class B Shares
Shareholders redeeming Class B Shares from their Fund accounts within six
full years of the purchase date of the Class B Shares originally purchased in
the Deutsche Fund from which the shareholder exchanged will be charged a
contingent deferred sales charge by the Distributor. Any applicable contingent
deferred sales charge will be imposed on the lesser of (i) the net asset value
of the Class B Shares of the exchanged-from Deutsche Fund, at the time of their
original purchase or (ii) the net asset value of the redeemed shares at the time
of redemption.
Class A Shares and Class B Shares
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
Distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to applicable Class A Shares.
Redemptions will be processed in a manner intended to maximize the amount of
redemption which will not be subject to a contingent deferred sales charge. In
computing the amount of the applicable contingent deferred sales charge,
redemptions are deemed to have occurred in the following order: (1) shares
acquired through the reinvestment of dividends and long-term capital gains;
(2)shares held for more than six full years from the date of purchase with
respect to Class B Shares and one full year from the date of purchase with
respect to applicable Class A Shares; (3) shares held for fewer than six years
with respect to Class B Shares and one full year from the date of purchase with
respect to applicable Class A Shares on a first-in, first-out basis. A
contingent deferred sales charge is not assessed in connection with an exchange
of Fund shares for shares of other funds in the Deutsche Funds of the same class
(see "Exchange Privilege"). Any contingent deferred sales charge imposed at the
time the Fund shares issued in an exchange from another Deutsche Fund are
redeemed is calculated as if the shareholder had held the shares from the date
on which such shareholder became a shareholder of the exchanged-from shares.
Moreover, the contingent deferred sales charge will be eliminated with respect
to certain redemptions (see "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 IRA or other retirement plan
to a shareholder who has attained the age of 70/1/U\\2; and (3) involuntary
redemptions by the Fund of shares in shareholder accounts that do not comply
with the minimum balance requirements. No contingent deferred sales charge will
be imposed on redemptions of shares held by Directors, employees and sales
representatives of the Corporation, Trustees or employees of the Portfolio
Trust, the distributor, or affiliates of the Funds or distributor; employees of
any financial intermediary that sells shares of the Funds pursuant to a sales
agreement with the Distributor; and spouses and children under the age of 21 of
the aforementioned persons. Finally, no contingent deferred sales charge will be
imposed on the redemption of shares originally purchased through a bank trust
department, an investment adviser registered under the Investment Advisers Act
of 1940, or retirement plans where the third party administrator has entered
into certain arrangements with the Distributor or its affiliates, or any other
financial intermediary, to the extent that no payments were advanced for
purchases made through such entities. The Directors reserve the right to
discontinue elimination of the contingent deferred sales charge. Shareholders
will be notified of such elimination. Any shares purchased prior to the
termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Funds' Prospectus at the time of the purchase of
the shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify the
Distributor or the Transfer Agent in writing that such shareholder is entitled
to such elimination.
ACCOUNT AND SHARE INFORMATION
Certificates and Confirmations
As Transfer Agent for the Funds, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested in writing to Federated Shareholder Services Company. No
certificates will be issued for fractional shares.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
Accounts with Low Balances
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
DIVIDENDS AND DISTRIBUTIONS
All the Funds' net income and short-term capital gains and losses, if any, are
declared as a dividend daily and paid monthly. All shareholders on the record
date are entitled to dividends and distributions.
Dividends and distributions paid by a Fund are automatically reinvested in
additional shares of that Fund at net asset value with no sales charge unless
the shareholder has elected to have them paid in cash. Dividends and
distributions to be paid in cash are mailed by check in accordance with the
customer's instructions. The Funds reserve the right to discontinue, alter or
limit the automatic reinvestment privilege at any time.
U.S. federal regulations require that a shareholder provide a certified taxpayer
identification number ("TIN") upon opening an account. A TIN is either the
Social Security number or employer identification number of the record owner of
the account. Failure to furnish a certified TIN to a Fund could subject a
shareholder to a $50 penalty which will be imposed by the Internal Revenue
Service ("IRS") on the Fund and passed on by the Fund to the shareholder. With
respect to individual investors and certain non-qualified retirement plans, U.S.
federal regulations generally require the Funds to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of any dividends and
distributions (including the proceeds of any redemption) payable to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct, or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on a
federal income tax return. Furthermore, the IRS may notify the Funds to
institute backup withholding if the IRS determines a shareholder's TIN is
incorrect. Backup withholding is not an additional tax; amounts withheld may be
credited against the shareholder's U.S. federal income tax liability.
NET ASSET VALUE
The net asset value for shares of each class of the Class A and Class B Fund
and the Class Y Fund is determined by subtracting from the value of each Fund's
and class' total assets (i.e., the value of its investment in the Portfolio and
other assets) the amount of its pro rata share liabilities, including expenses
payable or accrued, and dividing the difference by the number of shares of each
share class or Fund outstanding at the time the determination is made. It is
anticipated that the net asset value per share of each Fund will remain constant
at $1.00. No assurance can be given that this goal can be achieved.
Each Fund computes its net asset value once daily at 3:00 p.m. (U.S. Eastern
time) on Monday through Friday, except on the holidays listed under "Net Asset
Value" in the Statement of Additional Information.
The Portfolio's assets are valued by using the amortized cost method of
valuation. This method involves valuing a security at its cost at the time of
purchase and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. The market value of the securities held by
the Portfolio fluctuates on the basis of the creditworthiness of the issuers of
such securities and on the levels of interest rates generally. While the
amortized cost method provides certainty in valuation, it may result in periods
when the value so determined is higher or lower than the price the Portfolio
would receive if the security were sold. (See "Net Asset Value" in the Statement
of Additional Information.)
ORGANIZATION
The Corporation is an open-end management investment company organized on May
22, 1997, as a corporation under the laws of the State of Maryland. Its offices
are located at 5800 Corporate Drive Pittsburgh, PA 15237-7010; its telephone
number is 888-4-DEUTSCHE.
The Articles of Incorporation currently permit the Corporation to issue
17,500,000,000 shares of common stock, par value $0.001 per share, of which
5,000,000,000 shares have been classified as shares of Deutsche US Money Market
Fund and 10,000,000,000 shares have been classified as shares of Deutsche
Institutional US Money Market Fund. The Board of Directors of the Corporation
may increase the number of shares the Corporation is authorized to issue without
the approval of shareholders. The Board of Directors of the Corporation also has
the power to designate one or more additional series of shares of common stock
and to classify and reclassify any unissued shares with respect to such series.
Currently there are 11 such series and two classes of shares for 10 of the Funds
known as Class A Shares and Class B Shares. Five of the funds also offer Class C
Shares and the Class Y Fund has Class Y Shares.
Each share of a Fund or class shall have equal rights with each other share of
the Fund or class with respect to the assets of the Corporation pertaining to
the Fund or class. Upon liquidation of a Fund, shareholders of each class are
entitled to share pro rata in the net assets of the Fund available for
distribution to their class.
Shareholders of each Fund are entitled to one vote for each full share held and
to a fractional vote for fractional shares. Shareholders in each Fund generally
vote in the aggregate and not by class, unless the law expressly requires
otherwise or the Directors determine that the matter to be voted upon affects
only the interests of shareholders of a particular Fund or class of 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.
The Portfolio is a series of the Deutsche Portfolios, a trust organized under
the laws of the State of New York. The Deutsche Portfolios' Declaration of Trust
provides that the Funds and other entities investing in the Portfolio (e.g.,
other investment companies, insurance company separate accounts and common and
commingled trust funds) are each liable for all obligations of the Portfolio.
However, the risk of a Fund incurring financial loss on account of such
liability is limited to circumstances in which both inadequate insurance existed
and the Portfolio itself was unable to meet its obligations. Accordingly, the
Directors of the Corporation believe that neither the Funds nor their
shareholders will be adversely affected by reason of the investment of all of
the assets of the Funds in the Portfolio.
Each investor in the Portfolio, including the Funds, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange is open for
regular trading. At 4:00 p.m. (U.S. Eastern time) on each such business day, the
value of each investor's beneficial interest in the Portfolio is determined by
multiplying the net asset value of the Portfolio by the percentage, effective
for that day that represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals, which are to be
effected on that day, are then effected. The investor's percentage of the
aggregate beneficial interests in the Portfolio is then recomputed as the
percentage equal to the fraction (i)the numerator of which is the value of such
investor's investment in the Portfolio as of 4:00 p.m. (U.S. Eastern time) on
such day plus or minus, as the case may be, the amount of any additions to or
withdrawals from the investor's investment in the Portfolio effected on such
day, and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of 4:00 p.m. (U.S. Eastern time) on such day plus or minus, as the
case may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined is then applied to determine the value of the
investor's interest in the Portfolio as of 4:00 p.m. (U.S. Eastern time) on the
following business day of the Portfolio.
Whenever the Corporation is requested to vote on a matter pertaining to the
Portfolio, the Corporation will vote its shares without a meeting of
shareholders of the Funds if the proposal is one that, if made with respect to
the Funds, would not require the vote of shareholders of the Funds, as long as
such action is permissible under applicable statutory and regulatory
requirements. For all other matters requiring a vote, the Corporation will hold
a meeting of shareholders of the Funds and, at the meeting of investors in the
Portfolio, the Corporation will cast all of its votes in the same proportion as
the votes of the Funds' shareholders even if all Fund shareholders did not vote.
Even if the Corporation votes all its shares at the Portfolio Trust meeting,
other investors with a greater pro rata ownership in the Portfolio could have
effective voting control of the operations of the Portfolio.
TAXES
The Corporation intends that the Funds will qualify as a separate "regulated
investment company" under Subchapter M of the Code. As a regulated investment
company, each Fund will not be subject to U.S. federal income tax on its income
and gains that it distributes to stockholders, provided that it distributes at
least 90% of its net investment income (which includes income, other than
capital gains, net of operating expenses, and the Fund's net short-term capital
gains in excess of its net long-term capital losses and capital loss carry
forward, if any). Each Fund intends to distribute at least annually to its
shareholders substantially all of its net investment income (and realized net
capital gains, if any) for each taxable year. The Portfolio intends to elect to
be treated as a partnership for U.S. federal income tax purposes. As such, the
Portfolio generally should not be subject to U.S. taxes.
Dividends of net investment income are taxable to a U.S. shareholder as ordinary
income whether such distributions are taken in cash or are reinvested in
additional shares. Although each Fund does not intend to have any long-term
capital gains, distributions of net long-term capital gains, if any, are taxable
to a U.S. shareholder as long-term capital gains, regardless of how long the
shareholder has held the Fund's shares and regardless of whether taken in cash
or reinvested in additional shares.
For further information on taxes, see "Taxes" in the Statement of Additional
Information.
ADDITIONAL INFORMATION
Each Fund sends to its shareholders annual and semi-annual reports. The
financial statements appearing in annual reports are audited by independent
accountants. Shareholders also will be sent confirmations of each purchase and
redemption on monthly statements, reflecting all other account activity,
including dividends and any distributions reinvested in additional shares or
credited as cash.
In addition to selling beneficial interests to the Funds, the Portfolio may sell
beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Funds. Such different pricing structures
may result in differences in returns experienced by investors in other funds
that invest in the Portfolio. Such differences in returns are not uncommon and
are present in other mutual fund structures. Information concerning other
holders of interests in the Portfolio is available from the Administrator at
888-4-DEUTSCHE.
Each Fund may withdraw its investment from the Portfolio at any time if the
Board of Directors of the Corporation determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Directors
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with its investment
objective and policies.
APPENDIX A
THIS APPENDIX IS INTENDED TO PROVIDE DESCRIPTIONS OF THE SHORT-TERM SECURITIES
THE PORTFOLIO MAY PURCHASE. HOWEVER, OTHER SUCH SECURITIES NOT MENTIONED BELOW
MAY BE PURCHASED FOR THE PORTFOLIO IF THEY MEET THE QUALITY AND MATURITY
GUIDELINES SET FORTH IN THE PORTFOLIO'S INVESTMENT POLICIES.
U.S. Government Securities
Assets of the Portfolio may be invested in securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities. These securities,
including those which are guaranteed by federal agencies or instrumentalities,
may or may not be backed by the "full faith and credit" of the United States. In
the case of securities not backed by the full faith and credit of the United
States, it may not be possible to assert a claim against the United States
itself in the event the agency or instrumentality issuing or guaranteeing the
security for ultimate repayment does not meet its commitments. Securities which
are not backed by the full faith and credit of the United States include, but
are not limited to, securities of the Tennessee Valley Authority, the Federal
National Mortgage Association (FNMA), the U.S. Postal Service and the Resolution
Funding Corporation (REFCORP), each of which has a limited right to borrow from
the U.S. Treasury to meet its obligations, and securities of the Federal Farm
Credit System, the Federal Home Loan Banks, the Federal Home Loan Mortgage
Corporation (FHLMC) and the Student Loan Marketing Association, the obligations
of each of which may be satisfied only by the individual credit of the issuing
agency. Securities which are backed by the full faith and credit of the United
States include Treasury bills, Treasury notes, Treasury bonds and pass-through
obligations of the Government National Mortgage Association (GNMA), the Farmers
Home Administration and the Export-Import Bank. There is no percentage
limitation with respect to investments in U.S. government securities.
Bank Obligations
Assets of the Portfolio may be invested in U.S. dollar-denominated negotiable
certificates of deposit, fixed time deposits and bankers' acceptances of banks,
savings associations and savings banks organized under the laws of the United
States or any state thereof, including obligations of non-U.S. branches of such
banks, or of non-U.S. banks or their U.S. or non-U.S. branches, provided that in
each case, such bank has more than $500 million in total assets, and has an
outstanding short-term debt issue rated within the highest rating category for
short-term debt obligations by at least two (unless only rated by one)
nationally recognized statistical rating organizations (e.g., Moody's and S&P)
or, if unrated, are of comparable quality as determined by or under the
direction of the Portfolio's Board of Trustees. See "Bond, Note and Commercial
Paper Ratings" in the Statement of Additional Information.
There is no additional percentage limitation with respect to investments in
negotiable certificates of deposit, fixed time deposits and bankers' acceptances
of U.S. branches of U.S. banks and U.S. branches of non-U.S. banks that are
subject to the same regulation as U.S. banks. Since the Portfolio may contain
U.S. dollar-denominated certificates of deposit, fixed time deposits and
bankers' acceptances that are issued by non-U.S. banks and their non-U.S.
branches, the Portfolio may be subject to additional investment risks with
respect to those securities that are different in some respects from obligations
of U.S. issuers, such as currency exchange control regulations, the possibility
of expropriation, seizure or nationalization of non-U.S. deposits, less
liquidity and more volatility in non-U.S. securities markets and the impact of
political, social or diplomatic developments or the adoption of other foreign
government restrictions which might adversely affect the payment of principal
and interest on securities held by the Portfolio. If it should become necessary,
greater difficulties might be encountered in invoking legal processes abroad
than would be the case in the United States. Issuers of non-U.S. bank
obligations may be subject to less stringent or different regulations than are
U.S. bank issuers, there may be less publicly available information about a non-
U.S. issuer, and non-U.S. issuers generally are not subject to uniform
accounting and financial reporting standards, practices and requirements
comparable to those applicable to U.S. issuers. Income earned or received by the
Portfolio from sources within countries other than the United States may be
reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States, however, may reduce
or eliminate such taxes. All such taxes paid by the Portfolio would reduce its
net income available for distribution to investors (i.e., the Funds and other
investors in the Portfolio); however, the Adviser would consider available
yields, net of any required taxes, in selecting securities of non-U.S. issuers.
While early withdrawals are not contemplated, fixed time deposits are not
readily marketable and may be subject to early withdrawal penalties, which may
vary. Assets of the Portfolio are not invested in obligations of the Manager, or
the Distributor, or in the obligations of the affiliates of any such
organization. Assets of the Portfolio are also not invested in fixed time
deposits with a maturity of over seven calendar days, or in fixed time deposits
with a maturity of from two business days to seven calendar days if more than
10% of the Portfolio's net assets would be invested in such deposits.
Commercial Paper
Assets of the Portfolio may be invested in commercial paper including variable
rate demand master notes issued by U.S. corporations or by non-U.S. corporations
which are direct parents or subsidiaries of U.S. corporations. Master notes are
demand obligations that permit the investment of fluctuating amounts at varying
market rates of interest pursuant to arrangements between the issuer and a U.S.
commercial bank acting as agent for the payees of such notes. Master notes are
callable on demand, but are not marketable to third parties. Consequently, the
right to redeem such notes depends on the borrower's ability to pay on demand.
At the date of investment, commercial paper must be rated within the highest
rating category for short-term debt obligations by at least two (unless only
rated by one) nationally recognized statistical rating organizations (e.g.,
Moody's and S&P) or, if unrated, are of comparable quality as determined by or
under the direction of the Portfolio's Board of Trustees. Any commercial paper
issued by a non-U.S. corporation must be U.S. dollar-denominated and not subject
to non-U.S. withholding tax at the time of purchase. Aggregate investments in
non-U.S. commercial paper of non-U.S. issuers cannot exceed 10% of the
Portfolio's net assets. Since the Portfolio may contain commercial paper issued
by non-U.S. corporations, it may be subject to additional investment risks with
respect to those securities that are different in some respects from obligations
of U.S. issuers, such as currency exchange control regulations, the possibility
of expropriation, seizure or nationalization of non-U.S. deposits, less
liquidity and more volatility in non-U.S. securities markets and the impact of
political, social or diplomatic developments or the adoption of other foreign
government restrictions which might adversely affect the payment of principal
and interest on securities held by the Portfolio. If it should become necessary,
greater difficulties might be encountered in invoking legal processes abroad
than would be the case in the United States. There may be less publicly
available information about a non-U.S. issuer, and non-U.S. issuers generally
are not subject to uniform accounting and financial reporting standards,
practices and requirements comparable to those applicable to U.S. issuers.
Repurchase Agreements
Repurchase agreements may be entered into for the Portfolio only with a
"primary dealer" (as designated by the Federal Reserve Bank of New York) in U.S.
government securities. This is an agreement in which the seller (the "Lender")
of a security agrees to repurchase from the Portfolio the security sold at a
mutually agreed upon time and price. As such, it is viewed as the lending of
money to the Lender. The resale price normally is in excess of the purchase
price, reflecting an agreed upon interest rate. The rate is effective for the
period of time assets of the Portfolio are invested in the agreement and is not
related to the coupon rate on the underlying security. The period of these
repurchase agreements is usually short, from overnight to one week, and at no
time are assets of the Portfolio invested in a repurchase agreement with a
maturity of more than one year. The securities which are subject to repurchase
agreements, however, may have maturity dates in excess of one year from the
effective date of the repurchase agreement. The Portfolio always receives as
collateral securities which are issued or guaranteed by the U.S. government, its
agencies or instrumentalities. Collateral is marked to the market daily and has
a market value including accrued interest at least equal to 100% of the dollar
amount invested on behalf of the Portfolio in each agreement along with accrued
interest. Payment for such securities is made for the Portfolio only upon
physical delivery or evidence of book-entry transfer to the account of IBT, the
Portfolio's Custodian. If the Lender defaults, the Portfolio might incur a loss
if the value of the collateral securing the repurchase agreement declines and
might incur disposition costs in connection with liquidating the collateral. In
addition, if bankruptcy proceedings are commenced with respect to the Lender,
realization upon the collateral on behalf of the Portfolio may be delayed or
limited in certain circumstances. A repurchase agreement with more than seven
days to maturity may not be entered into for the Portfolio if, as a result, more
than 10% of the Portfolio's net assets would be invested in such repurchase
agreement together with any other investment for which market quotations are not
readily available.
When-Issued and Delayed Delivery Securities
Securities may be purchased for the Portfolio on a when-issued or delayed
delivery basis. For example, delivery and payment may take place a month or more
after the date of the transaction. The purchase price and the interest rate
payable on the securities are fixed on the transaction date. The securities so
purchased are subject to market fluctuation and no interest accrues to the
Portfolio until delivery and payment take place. At the time the commitment to
purchase securities for the Portfolio on a when-issued or delayed delivery basis
is made, the transaction is recorded and thereafter the value of such securities
is reflected each day in determining the Portfolio's net asset value. At the
time of its acquisition, a when-issued security may be valued at less than the
purchase price. Commitments for such when-issued securities are made only when
there is an intention of actually acquiring the securities. To facilitate such
acquisitions, a segregated account with the Custodian is maintained for the
Portfolio with liquid assets in an amount at least equal to such commitments.
Such a segregated account consists of liquid, high grade debt securities marked
to the market daily, with additional liquid assets added when necessary to
insure that at all times the value of such account is equal to the commitments.
On delivery dates for such transactions, such obligations are met from
maturities or sales of the securities held in the segregated account and/or from
cash flow. If the right to acquire a when-issued security is disposed of prior
to its acquisition, the Portfolio could, as with the disposition of any other
portfolio obligation, incur a gain or loss due to market fluctuation. When-
issued commitments for the Portfolio may not be entered into if such commitments
exceed in the aggregate 15% of the market value of the Portfolio's total assets,
less liabilities other than the obligations created by when-issued commitments.
Securities of the World Bank, Other Supranational Organizations and Foreign
Governments
Assets of the Portfolio may also be invested in obligations of the International
Bank of Reconstruction and Development (also known as the World Bank) and
certain other supranational organizations, which are supported by subscribed but
unpaid commitments of member countries. There is no assurance that these
commitments will be undertaken or complied with in the future. The Portfolio
limits its investment in United States dollar-denominated obligations of foreign
governments and their agencies and instrumentalities to the commercial paper and
other short-term notes (or other notes with remaining maturities meeting the
requirements of Rule 2a-7) issued or guaranteed by the governments, or agencies
and instrumentalities thereof, that are members of the OECD (Organisation for
Economic Co-Operation and Development) and those countries whose sovereign
issuances qualify as Eligible Securities.
Other Obligations
Assets of the Portfolio may be invested in bonds, with remaining maturities not
exceeding one year, issued by U.S. corporations which at the date of investment
are rated within the highest rating category for such obligations by at least
two (unless only rated by one) nationally recognized statistical rating
organizations (e.g., Moody's and S&P) or, if unrated, are of comparable quality
as determined by or under the direction of the Portfolio's Board of Trustees.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Corporation or the Distributor. This Prospectus
does not constitute an offer by the Corporation or by the Distributor to sell or
a solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Corporation or the
Distributor to make such offer in such jurisdiction.
Deutsche US Money Market Fund
Investment Manager
Deutsche Fund Management, Inc.
31 West 52nd Street
New York, NY 10019
Distributor
Edgewood Services, Inc.
5800 Corporate Drive
Pittsburgh, PA 15237-5829
Transfer Agent
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600
Custodian
Investors Bank & Trust Co.
200 Clarendon Street
Boston, MA 02116
GO2179-06 (10/98)
Deutsche US Money Market Funds
Class A and Class B Fund and Class Y Fund
Statement of Additional Information
The Deutsche US Money Market Fund (the "Class A and Class B Fund") and the
Deutsche Institutional US Money Market Fund (the "Class Y Fund") (individually,
a "Fund" and collectively, the "Funds"), each a series of the Deutsche Funds,
Inc. (the "Corporation"), a management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). The investment objective of
each Fund is to achieve as high a level of current income as is consistent with
the preservation of capital and the maintenance of liquidity.
The Corporation seeks to achieve the investment objective of each Fund by
investing all of the Fund's investable assets in US Money Market Portfolio (US
Dollar) (the "Portfolio"), a Maryland corporation incorporated on May 22, 1997,
and a diversified, open-end management investment company. The Portfolio pursues
its investment objective by investing in high quality, short-term money market
instruments.
The Portfolio is a series of the Deutsche Portfolios (the "Portfolio Trust"), an
open-end investment company organized as a trust under the laws of the State of
New York. The Portfolio has the same investment objective as the Funds. There
can be no assurance that the Funds or the Portfolio will achieve their
investment objective.
The Class A and Class B Fund offers two classes of shares, Class A Shares and
Class B Shares (individually and collectively referred to as "Shares" as the
context may require). Class A Shares are offered at net asset value; Class B
Shares are designed primarily for temporary investment as part of a special
investment program in Class B Shares, and unlike shares of most money market
funds, are offered at net asset value, but with a declining contingent deferred
sales charge on redemptions made within six years.
Deutsche Fund Management, Inc. ("DFM"), a registered investment adviser and an
indirect subsidiary of Deutsche Bank AG, a major global financial institution,
is the investment manager (the "Manager") of the Portfolio. Deutsche Bank
Securities Investment Management Inc. is the investment adviser (the "Adviser")
of the Portfolio. This Statement of Additional Information is not a prospectus
and should be read in conjunction with the Funds' Prospectus dated October 31,
1998, a copy of which may be obtained from the Corporation at the address noted
below.
5800 Corporate Drive
Pittsburgh, PA 15237-7010
The date of this Statement of Additional Information is October 31, 1998.
G02179-07 (10/98)
<PAGE>
I
Table of Contents
<PAGE>
Investment Objective and Policies 1
Loans of Portfolio Securities 1
Investment Restrictions 1
Non-Fundamental Investment Restrictions2
Percentage and Rating Restrictions 2
Directors, Trustees, and Officers 3
Directors of the Corporation and Trustees of
the Portfolio Trust 3
Officers of the Corporation and the Portfolio
Trust (unless otherwise noted) 4
Compensation Table--Directors of the
Corporation and Trustees of the Portfolio
Trust 6
Fund Ownership 6
Manager 7
Adviser 7
Administrator 8
Operations Agent 9
Administrative Agent 9
Distributor 10
Transfer Agent, Custodian and Fund
Accountant 10
Independent Accountants 11
Purchase of Shares 11
Conversion to Federal Funds 11
Redemption of Shares 11
Redemption in Kind 11
Systematic Withdrawal Program 11
Exchange of Shares 12
Net Asset Value 12
Performance Data 13
Yield 13
General 13
Economic and Market Information 14
Portfolio Transactions 14
Taxes 14
--
United States Taxation 14
State and Local Taxes 15
Description of Shares 15
Additional Information 16
Financial Statements 16
Bond, Note, and Commercial Paper Ratings17
Statement of Assets and Liabilities 18
Notes to Financial Statements 19
Report of Independent Accountants 20
<PAGE>
126
Investment Objective and Policies
The following supplements the information contained in the Funds' Prospectus
concerning the investment objective, policies and techniques of the Portfolio.
Loans of Portfolio Securities
Securities of the Portfolio may be loaned if such loans are secured continuously
by cash or equivalent collateral or by an irrevocable letter of credit in favor
of the Portfolio at least equal at all times to 100% of the market value of the
securities loaned plus accrued income. While such securities are on loan, the
borrower pays the Portfolio any income accruing thereon, and cash collateral may
be invested for the Portfolio, thereby earning additional income. All or any
portion of interest earned on invested collateral may be paid to the borrower.
Loans are subject to termination by the Portfolio in the normal settlement time,
currently three business days after notice, or by the borrower on one day's
notice. Borrowed securities are returned when the loan is terminated. Any
appreciation or depreciation in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
investors. Reasonable finders' and custodial fees may be paid in connection with
a loan. In addition, all facts and circumstances, including the creditworthiness
of the borrowing financial institution, are considered before a loan is made and
no loan is made in excess of one year. There is the risk that a borrowed
security may not be returned to the Portfolio.
Investment Restrictions
The investment restrictions of the Funds and the Portfolio are identical, unless
otherwise specified. Accordingly, references below to the Funds also include the
Portfolio unless the context requires otherwise; similarly, references to the
Portfolio also include the Funds unless the context requires otherwise.
The investment restrictions below have been adopted by the Corporation with
respect to the Funds as indicated and by the Portfolio Trust with respect to the
Portfolio as indicated. Except where otherwise noted, these investment
restrictions are "fundamental" policies which, under the 1940 Act, may not be
changed without the vote of a "majority of the outstanding voting securities"
(as defined in the 1940 Act) of a Fund or the Portfolio, as the case may be. The
percentage limitations contained in the restrictions below apply at the time of
the purchase of securities except as otherwise noted. Whenever a Fund is
requested to vote on a change in the fundamental investment restrictions of the
Portfolio, the Corporation will hold a meeting of Fund shareholders and will
cast its votes as instructed by such Fund's shareholders.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any Securities and Exchange
Commission ("SEC") or SEC staff interpretations thereof are amended or modified,
each Fund and the Portfolio may not (except that the Corporation may invest all
of each Fund's assets in the Portfolio):
(1)enter into repurchase agreements with more than seven days to maturity if,
as a result thereof, more than 10% of the market value of its net assets
would be invested in such repurchase agreements together with any other
investment for which market quotations are not readily available;
(2)enter into reverse repurchase agreements which, including any borrowings
under Investment Restriction No. 3, exceed, in the aggregate, one-third of
the market value of its total assets, less liabilities other than obligations
created by reverse repurchase agreements. In the event that such agreements
exceed, in the aggregate, one-third of such market value, it will, within
three days thereafter (not including Sundays and holidays) or such longer
period as the SEC may prescribe, reduce the amount of the obligations created
by reverse repurchase agreements to an extent that such obligations will not
exceed, in the aggregate, one-third of the market value of its assets;
(3)borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts not to exceed 10% of the value of its total assets,
taken at cost, at the time of such borrowing; mortgage, pledge or hypothecate
any assets except in connection with any such borrowing and in amounts not to
exceed 10% of the value of its net assets at the time of such borrowing.
Neither the Portfolio nor the Corporation on behalf of the Funds, as the case
may be, will purchase securities while borrowings exceed 5% of its total
assets. This borrowing provision is included to facilitate the orderly sale
of portfolio securities, for example, in the event of abnormally heavy
redemption requests, and is not for investment purposes and does not apply to
reverse repurchase agreements;
(4)enter into when-issued commitments exceeding in the aggregate 15% of the
market value of its total assets, less liabilities other than obligations
created by when-issued commitments;
(5) purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of such investments in such industry would equal or
exceed 25% of the value of its total assets. For purposes of industry
concentration, there is no percentage limitation with respect to investments
in U.S. government securities and negotiable certificates of deposit, fixed
time deposits and bankers' acceptances of U.S. branches of U.S. banks and
U.S. branches of non-U.S. banks that are subject to the same regulation as
U.S. banks;
(6) purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of its total
assets would be invested in securities or other obligations or any one such
issuer. This limitation does not apply to issues of the U.S. government, its
agencies or instrumentalities;
(7)make loans, except through the purchase or holding of debt obligations,
repurchase agreements or loans of portfolio securities in accordance with its
investment objective and policies (see "Investment Objective and Policies");
(8)purchase or sell puts, calls, straddles, spreads, or any combinations
thereof; real estate; commodities; commodity contracts or interests in oil,
gas or mineral exploration or development programs. However, bonds or
commercial paper issued by companies which invest in real estate or interests
therein including real estate investment trusts may be purchased;
(9)purchase securities on margin, make short sales of securities or maintain a
short position, provided that this restriction is not deemed to be applicable
to the purchase or sale of when-issued securities or of securities for
delivery at a future date;
(10) invest in fixed time deposits with a duration of over seven calendar days,
or in fixed time deposits with a duration of from two business days to seven
calendar days if more than 10% of its total assets would be invested in such
deposits;
(11) acquire securities of other investment companies;
(12) act as an underwriter of securities; or
(13) issue any senior security (as that term is defined in the 1940 Act) if such
issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder.
Non-Fundamental Investment Restrictions
In order to comply with certain federal statutes and policies neither the
Portfolio nor the Funds may as a matter of operating policy (except that each
Fund may invest all of its assets in an open-end investment company with
substantially the same investment objective, policies and restrictions as the
Fund): (i) borrow money at any time at which the amount of its borrowings exceed
5% of its total assets (taken at market value), (ii) purchase securities issued
by any investment company if such purchase at the time thereof would cause more
than 5% of its total assets (taken at the greater of cost or market value) to be
invested in the securities of such issuer, would cause more than 10% of its
total assets (taken at the greater of cost or market value) to be invested in
the securities of such issuer and all other investment companies or would cause
more than 3% of the outstanding voting securities of any such issuer to be held
for it, or (iii) invest more than 10% of its net assets in securities (valued at
the greater of cost or market value) that are subject to legal or contractual
restrictions on resale or in securities which are not readily marketable,
including repurchase agreements and fixed time deposits having maturities of
more than 7 days, provided that there is no limitation with respect to or
arising out of investment in (a) securities that have legal or contractual
restrictions on resale but have a readily available market or (b) securities
that are not registered under the Securities Act but which can be sold to
qualified institutional buyers in accordance with Rule 144A under the Securities
Act. These policies are not fundamental and may be changed without shareholder
or investor approval in response to changes in the various federal requirements.
Percentage and Rating Restrictions
Except with respect to Fundamental Investment Restriction No. 2 and
Non-Fundamental Investment Restriction (iii) above and the limitation on the
Portfolio's obligations created by reverse repurchase agreements described in
the Prospectus under "Investment Objectives, Policies and Restrictions--Reverse
Repurchase Agreements," a percentage or rating restriction on investment or
utilization of assets set forth above or referred to in the Prospectus is
adhered to at the time an investment is made or assets are so utilized, a later
change in percentage resulting from changes in the value of the portfolio
securities or a later change in the rating of a portfolio security is not
considered a violation of policy. If the Funds' and the Portfolio's investment
restrictions relating to any particular investment practice or policy are not
consistent, the Portfolio has agreed with the Corporation, on behalf of the
Funds, that the Portfolio will adhere to the more restrictive limitation.
The Funds will comply with Rule 2a-7 under the 1940 Act, including the
eligibility, diversification, quality and maturity limitations imposed by the
Rule.
Currently, pursuant to Rule 2a-7, the Funds may invest only in U.S.
dollar-denominated "eligible securities" (as that term is defined in the Rule)
that have been determined by the Adviser to present minimal credit risks
pursuant to procedures approved by the Trustees. Generally, an eligible security
is a security that (i) has, or is deemed to have, a remaining maturity of 397
days or less and (ii) is rated, or is issued by an issuer with short-term debt
outstanding that is rated in one of the two highest rating categories by two
nationally recognized statistical rating organizations ("NRSROs") or, if only
one NRSRO has issued a rating, by that NRSRO. A security that originally had a
maturity of greater than 397 days is an eligible security if its remaining
maturity, or remaining deemed maturity, at the time of purchase is 397 calendar
days or less and the issuer has outstanding short-term debt that would be an
eligible security. Unrated securities may also be eligible securities if the
Adviser determines that they are of comparable quality to a rated eligible
security pursuant to guidelines approved by the Trustees. A description to the
ratings of some NRSROs appears in the Appendix attached hereto (See "Bond, Note
and Commercial Paper Ratings").
Under Rule 2a-7 each Fund may not invest more than five percent of its assets in
the securities of any one issuer other than the United States government, its
agencies and instrumentalities. In addition, each Fund may not invest in a
security that has received, or is deemed comparable in quality to a security
that has received, the second highest rating by the requisite number of NRSROs
(a "second tier security") if immediately after the acquisition thereof the Fund
would have invested more than (a) the greater of one percent of its total assets
or one million dollars in securities issued by that issuer which are second tier
securities, or (b) five percent of its total assets in second tier securities.
Directors, Trustees, and Officers
The Directors of the Corporation, Trustees of the Portfolio Trust and
executive officers of the Corporation and the Portfolio Trust, and their
principal occupations during the past five years (although their titles may have
varied during the period), business addresses, and birthdates are:
Directors of the Corporation and Trustees of the Portfolio Trust
Richard R. Burt
Chairman of IEP Advisors, Inc. Chairman of the Board of Weirton Steel.
Member of the Board of Hollinger International. Member of the Board of Archer
Daniels Midland. Member of the Board of Homestake Mining. Director of the
Mitchell Hutchins family of funds. Member of the Textron Corporation
International Advisory Council. Partner with McKinsey & Company (1991-1994).
Previously U.S. Chief Negotiator in the Strategic Arms Reduction Talks (START)
with the former Soviet Union, and prior to that was U.S. Ambassador to the
Federated Republic of Germany (1985-1991). Amb. Burt's address is IEP Advisors,
LLP, 1275 Pennsylvania Avenue NW, 10th Floor, Washington, D.C. 20004, and his
birthdate is February 3, 1947.
Edward C. Schmults
Member of the Board of Directors of Green Point Financial Corp. Chairman of
the Board of Trustees of The Edna McConnell Clark Foundation. Director of The
Germany Fund, Inc. and The Central European Equity Fund, Inc. Senior Vice
President-External Affairs and General Counsel of GTE Corporation (prior to
1994). Mr. Schmults' address is Rural Route One, Box 788, Cuttingsville, VT
05738, and his birthdate is February 6, 1931.
<PAGE>
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 4455 E. Camelback Road, Suite 261 E., Phoenix, AZ 85018, and his
birthdate is January 29, 1940.
Werner Walbroel
President and Chief Executive of the German American Chamber of Commerce,
Inc. President of European American Chamber of Commerce. 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, and his
birthdate is August 28, 1937.
G. Richard Stamberger*
Former Managing Director of Deutsche Bank Securities, Inc. Managing
Director of C.J. Lawrence, Inc. (prior to 1993). Mr. Stamberger's address is 921
Fox Hill Lane, Scotch Plains, NJ 07076, and his birthdate is October 24, 1947.
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, and his birthdate is May 28, 1943.
* Is an "interested person" of the Corporation or the Portfolio Trust as
that term is defined in the 1940 Act. Officers of the Corporation and the
Portfolio Trust (unless otherwise noted)
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. Mr. Lee's birthdate is November 20, 1947.
Joseph Cheung
Treasurer Vice President (since 1996), Assistant Vice President (1994-1996)
and Associate (1991-1994) of Deutsche Bank Securities Inc. Treasurer of the
CountryBaskets SM Index Fund, Inc. (1996-1997). Chief Financial Officer and
Treasurer of The Germany Fund, Inc., The Central European Equity Fund, Inc. and
The New Germany Fund, Inc. (since 1997). Assistant Secretary and Assistant
Treasurer of The Germany Fund, Inc., The Central European Equity Fund, Inc. and
The New Germany Fund, Inc. (1993-1997). Mr. Cheung's birthdate is August 30,
1958.
<PAGE>
Robert R. Gambee
Secretary Director, Deutsche Bank Securities Inc. (since 1992). Chief
Operating Officer and Secretary of The Germany Fund, Inc., The Central European
Equity Fund, Inc. and The New Germany Fund, Inc. (since 1997). Secretary and
Treasurer of The Germany Fund, Inc. (1986-1997), The New Germany Fund, Inc.
(1990-1997) and The Central European Equity Fund, Inc. (1990-1997). First Vice
President, Deutsche Bank Securities,Inc. (1985-1991). Corporate Secretary, DB
New World Fund Limited. Secretary, Deutsche Bank Investment Management, Inc. Mr.
Gambee's birthdate is August 26, 1942.
Laura Weber
Assistant Secretary and Assistant Treasurer Associate of Deutsche Bank
Securities Inc. (since June, 1997). Assistant Secretary and Assistant Treasurer
of The Germany Fund, Inc., The New Germany Fund, Inc., and The Central European
Equity Fund, Inc. 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. Ms. Weber's
birthdate is July 13, 1971.
Holger Naumann
Assistant Treasurer of the Portfolio Trust
Director of DFM (since January 1997). Head of Participations at DWSDeutsche
Gesellschaft fuer Wertpapiersparen mbH (since December 1995). Group Strategy
Department at Deutsche Bank AG(1992-1995). Mr. Naumann's address is DWS Deutsche
Gesellschaft fuer Wertpapiersparen mbH, Gruneburgweg 113-115, 60323 Frankfurt am
Main, Germany, and his birthdate is May 17, 1962.
Joseph Bernhart
Assistant Treasurer of the Portfolio Trust
Participations Department at DWS Deutsche Gesellschaft fuer Wertpapiersparen mbH
(since July 1997). DIH Deutsche Industrie-Holding GmbH & Co. KG (affiliate to
Deutsche Bank AG)( 1995 - 1997). Trainee, Deutsche Bank AG (1994-1995). Mr.
Bernhart's address is DWS Deutsche Gesellschaft fuer Wertpapiersparen mbH,
Gruneburgweg 113-115, 60323 Frankfurt am Main, Germany, and his birthdate is May
7, 1966.
Unless otherwise noted, the address of each Cororation Director and Officer and
Trust Trustee and Officer is 31 West 52nd Street, New York, NY 10019.
<PAGE>
Compensation Table--Directors of the Corporation and Trustees of the
Portfolio Trust
Aggregate Estimated Total
Compensation Compensation
from the from the Corporation
Corporation the Portfolio Trust,
and the and the
Portfolio Trust * Fund Complex**
Edward C. Schmults,
Director and Trustee $1,000 $45,750
Robert H. Wadsworth,
Director and Trustee $1,000 $63,000
Werner Walbroel,
Director and Trustee $1,000 $47,250
G. Richard Stamberger,
Director and Trustee None None
Christian Strenger,
Director and Trustee None None
Richard R. Burt,#
Director and Trustee None None
* Information is furnished for the fiscal year ended August 31, 1998.
** 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.
Information is furnished for the period from May 22, 1997, organization date
of the Corporation, to August 31, 1998.
# Amb. Richard R. Burt was elected as a Director of the Corporation on
October 9, 1998.
The non-interested Directors of the Corporation receive a base annual fee of
$5,000 and $500 per meeting attended, plus expenses, which are paid jointly by
all series of the Corporation and allocated among the series based upon their
respective net assets.
The non-interested Trustees of the Portfolio Trust receive a base annual fee of
$5,000 and $500 per meeting attended plus expenses which is paid jointly by all
series of the Portfolio Trust and allocated among the series based upon their
respective net assets.
Neither the Corporation nor the Portfolio Trust requires employees and none of
the Corporation's officers devote full time to the affairs of the Corporation or
receive any compensation from a Fund or a Portfolio.
Fund Ownership
As of October 9, 1998, the following shareholders of record owned 5% or
more of the outstanding Class A Shares: Fidelity Investments Institutional
Operations Co. Inc. (as record holder for its clients), Covington,KY, owned
approximately 7,922,080 Shares (92.09%); and Deutsche Bank Securities Inc. (as
record holder for its clients), New York, NY, owned approximately 642,671 Shares
(7.47%).
As of October 9, 1998, no person owned 5% or more of the outstanding voting
stock of the Class B Shares of the Class A and Class B Fund.
As of October 9, 1998, the following shareholders of record owned 5% or more of
the outstanding Class Y Shares: Federated Administrative Services, Pittsburgh,
PA, owned 100 (100%) Class Y Shares.
As of October 9, 1998, the Directors of the Corporation, Trustees of the
Portfolio Trust and Officers of the Corporation and the Portfolio Trust as a
group owned less than 1% of the Funds.
Manager
The investment manager to the Portfolio is DFM, an indirect subsidiary of
Deutsche Bank AG, a major global banking institution headquartered in Germany.
DFM, with principal offices at 31 West 52nd Street, New York, New York 10019, is
a Delaware corporation and registered investment adviser under the Investment
Advisers Act of 1940.
Pursuant to an investment management agreement with the Portfolio Trust with
respect to the Portfolio ("Management Agreement"), DFM acts as investment
manager to the Portfolio and, subject to the supervision of the Board of
Trustees of the Portfolio Trust, is responsible for, but may and has delegated
as described below, under "Adviser," the management of the investment operations
of the Portfolio's investments in accordance with its investment objective,
policies and restrictions. DFM also provides the Portfolio with overall
supervisory services over the other service providers and certain other
services. The investment management services DFM provides to the Portfolio are
not exclusive under the terms of the Management Agreement. DFM is free to render
similar investment management services to others.
The Management Agreement is dated July 28, 1997 and will remain in effect until
July 28, 1999 and from year to year thereafter, but only so long as the
agreement is specifically approved at least annually (i) by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Portfolio, or by the Portfolio Trust's Trustees, and (ii) by a
vote of a majority of the Trustees of the Portfolio Trust who are not parties to
such Management Agreement or "interested persons" (as defined in the 1940 Act)
of the Portfolio Trust, cast in person at a meeting called for the purpose of
voting on such approval. The Management Agreement was initially approved at a
meeting held on July 28, 1997. The Management Agreement will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio Trust's Trustees, or by a vote of the
holders of a majority of the Portfolio's outstanding voting securities, on 60
days' written notice to the Manager and by the Manager on 90 days' written
notice to the Portfolio Trust. The Management Agreement provides that neither
DFM nor its personnel shall be liable for any error of judgment or mistake of
law or for any loss or expense in connection with the matters in which the
agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its obligations and duties
under the agreement. See "Additional Information."
As compensation for the services rendered and related expenses borne by DFM
under the Management Agreement with the Portfolio Trust with respect to the
Portfolio, DFM receives a fee from the Portfolio, which is computed daily and
may be paid monthly, equal to 0.15% of the average daily net assets of the
Portfolio on an annualized basis for the Portfolio's then-current fiscal year.
DFM and the Adviser have agreed to reimburse certain expenses of the Class A and
Class B Fund, and, together with certain other service providers to the Class Y
Fund and the Portfolio, to waive and/or reimburse expenses of the Class Y Fund,
for at least one year from the respective Fund's commencement of operations. See
also "Expenses" in the Prospectus.
From the Portfolio's commencement of operations (March 25, 1998) through
August 31, 1998, DFM earned management fees of $215,792.
The Glass-Steagall Act and other applicable laws generally prohibit banks
(including foreign banks having U.S. operations, such as Deutsche Bank AG) from
engaging in the business of underwriting or distributing securities in the
United States, and the Board of Governors of the Federal Reserve System has
issued an interpretation to the effect that under these laws a bank holding
company registered under the Federal Bank Holding Company Act (or a foreign bank
subject to such Act's provisions) or certain subsidiaries thereof may not
sponsor, organize, or control a registered open-end investment company
continuously engaged in the issuance of its shares, such as the Corporation. The
interpretation does not prohibit a holding company (or such a foreign bank) or a
subsidiary thereof from acting as investment manager and custodian to such an
investment company. Deutsche Bank AG believes that DFM may perform the services
for the Portfolio Trust and the Corporation contemplated by the Management
Agreement without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. It is possible that future changes in federal
statutes and regulations concerning the permissible activities of banks or trust
companies, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, might prevent
DFM from continuing to perform such services for the Portfolio.
Adviser
DFM has entered into an investment advisory agreement (the "Advisory
Agreement") dated July 28, 1997, with DWS International Portfolio Management
GmbH and the Adviser on behalf of the Portfolio Trust with respect to the
Portfolio and certain other portfolios of the Portfolio Trust. It is the
Adviser's responsibility, under the overall supervision of DFM, to conduct the
day-to-day investment decisions of the Portfolio, arrange for the execution of
portfolio transactions and generally manage the Portfolio's investments in
accordance with its investment objective, policies and restrictions. The Adviser
is an indirect subsidiary of Deutsche Bank AG. For these services, the Adviser
receives from DFM a fee, which is computed daily and may be paid monthly, equal
to 0.1125% of the average daily net assets of the Portfolio on an annualized
basis for the Portfolio's then-current fiscal year.
The Advisory Agreement is dated July 28, 1997 and will remain in effect until
July 28, 1999 and from year to year thereafter, but only so long as the
agreement is specifically approved at least annually (i) by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Portfolio, or by the Portfolio Trust's Trustees, and (ii) by a
vote of a majority of the Trustees of the Portfolio Trust who are not parties to
such Advisory Agreement or "interested persons" (as defined in the 1940 Act) of
the Portfolio Trust, cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement was initially approved at a
meeting held on July 28, 1997. The Advisory Agreement will terminate
automatically if assigned or if the Management Agreement is terminated and is
terminable at any time without penalty by a vote of a majority of the Portfolio
Trust's Trustees, or by a vote of the holders of a majority of the Portfolio's
outstanding voting securities, on 60 days' written notice to the Adviser and by
the Adviser on 90 days' written notice to the Manager and the Portfolio Trust.
The Advisory Agreement provides that neither the Adviser nor its personnel shall
be liable for any error of judgment or mistake of law or for any loss or expense
in connection with the matters in which the agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its obligations and duties under the agreement. See
"Additional Information."
From the Portfolio's commencement of operations ( March 25, 1998) through
August 31, 1998, the Adviser earned advisory fees of $161,844.
Administrator
Under the master agreement for administration services with the Corporation
("Administration Agreement"), Federated Services Company serves as administrator
to the Funds ("Administrator"). In connection with its responsibilities as
Administrator, Federated Services Company, among other things (i) prepares,
files and maintains the Funds' governing documents, registration statements and
regulatory filings; (ii) prepares and coordinates the printing of publicly
disseminated documents; (iii) monitors declaration and payment of dividends and
distributions; (iv) projects and reviews the Funds' expenses; (v) performs
internal audit examinations; (vi) prepares and distributes materials to the
Directors of the Corporation; (vii) coordinates the activities of all service
providers; (viii) monitors and supervises collection of tax reclaims; and (ix)
prepares shareholder meeting materials.
The Administration Agreement between the Corporation and Federated Services
Company (dated July 28, 1997) with respect to the Funds has an initial term of
three years. Thereafter, the Administration Agreement will remain in effect
until terminated by either party thereto. The agreement is terminable by the
Corporation at any time after the initial term without penalty by a vote of a
majority of the Directors of the Corporation, or by a vote of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Corporation (see "Additional Information"). The Administration Agreement is
terminable by the Directors of the Corporation or shareholders of the Funds on
60 days' written notice to Federated Services Company. The agreement is
terminable by the Administrator on 90 days' written notice to the Corporation.
The Administration Agreement provides that neither Federated Services Company
nor its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in its
services, except for willful misfeasance, bad faith or negligence or reckless
disregard of its obligations and duties under the Agreement. See "Additional
Information."
As Administrator, Federated Services Company receives a fee from each Fund,
which is computed daily and may be paid monthly, at an annual rate, for at least
the Fund's first year of operations, equal to 0.045% of the average daily net
assets of the Fund on an annualized basis for the Fund's then-current fiscal
year. If, after the Funds' first year of operations, the average net assets of
the Portfolio (excluding net assets attributable to the Class Y Fund) have not
reached $325 million, the Administrator's fee would be increased to an annual
rate of 0.065% of the average daily net assets of each Fund up to $200 million
and 0.0525% of the average daily net assets of each Fund greater than $200
million. The Administrator has agreed, together with the Manager, the Adviser
and certain other service providers to the Class Y Fund and the Portfolio, to
waive a portion of its fees and/or reimburse expenses of the Fund under certain
circumstances for at least one year from the Fund's commencement of investment
operations. See "Expenses" in the Prospectus.
From the Funds' commencement of operations through August 31, 1998, the Funds
incurred costs for administrative services in the amount of $120 for the Class A
and Class B Fund.
<PAGE>
Operations Agent
Under an operations agency agreement with the Portfolio Trust ("Operations
Agency Agreement"), Federated Services Company serves as operations agent to the
Portfolio ("Operations Agent"). In connection with its responsibilities as
Operations Agent of the Portfolio, Federated Services Company, among other
things; (i) prepares governing documents, registration statements and regulatory
filings; (ii) performs internal audit examinations; (iii) prepares expense
projections; (iv) prepares materials for the Trustees of the Portfolio Trust;
(v) coordinates the activities of all service providers; (vi) conducts
compliance training for the Adviser; and (vii) prepares investor meeting
materials.
The Operations Agency Agreement between the Portfolio Trust and Federated
Services Company (dated July 28, 1997) with respect to the Portfolio has an
initial term of three years. Thereafter, the Operations Agency Agreement will
remain in effect until terminated by either party thereto. The agreement is
terminable by the Portfolio Trust at any time after the initial term without
penalty by a vote of a majority of the Trustees of the Portfolio Trust, or by a
vote of the holders of a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the Portfolio Trust (see "Additional Information").
The Operations Agency Agreement is terminable by the Trustees of the Portfolio
Trust or investors of the Portfolio on 60 days' written notice to Federated
Services Company. The agreement is terminable with respect to the Portfolio by
Federated Services Company on 90 days' written notice to the Portfolio Trust.
The Operations Agent Agreement provides that neither Federated Services Company
nor its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in its
services, except for willful misfeasance, bad faith or gross negligence or
reckless disregard of its obligations and duties under the Agreement.
As Operations Agent of the Portfolio, Federated Services Company receives a fee
from the Portfolio, which is computed daily and paid monthly, at an annual rate,
for at least the Portfolio's first year of operations, equal to 0.015% of the
average daily net assets of the Portfolio. If, after the Portfolio's first year
of operations, the average net assets of the Portfolio (excluding net assets
attributable to the Class Y Fund) have not reached $325 million, the Operations
Agent's fee would be increased to an annual rate of 0.035% of the average daily
net assets of the Portfolio. See "Expenses" in the Prospectus.
From the Portfolio's commencement of operations through August 31, 1998, the
Portfolio incurred Operations Agency fees in the amount of $28,933.
Administrative Agent
Under an administration agreement with the Portfolio Trust ("Administration
Agreement"), IBT Trust Company (Cayman) Ltd. ("IBT (Cayman)") serves as
administrative agent to the Portfolio ("Administrative Agent"). In connection
with its responsibilities as Administrative Agent of the Portfolio, IBT (Cayman)
(i) files and maintains governing documents, registration statements and
regulatory filings; (ii) maintains a telephone line; (iii) approves annual
expense budgets; (iv) authorizes expenses; (v) distributes materials to the
Trustees of the Portfolio Trust; (vi) authorizes dividend distributions; (vii)
maintains books and records; (viii) files tax returns; and (ix) maintains an
investor register.
The Administration Agreement between the Portfolio Trust and IBT (Cayman) (dated
July 28, 1997) with respect to the Portfolio has an initial term of three years.
Thereafter, the Administration Agreement will remain in effect until terminated
by either party thereto. The agreement is terminable by the Portfolio Trust at
any time after the initial term without penalty by a vote of a majority of the
Trustees of the Portfolio Trust, or by a vote of the holders of a "majority of
the outstanding voting securities" (as defined in the 1940 Act) of the Portfolio
Trust (see "Additional Information"). The Administration Agreement is terminable
by the Trustees of the Portfolio Trust or investors of the Portfolio on 60 days'
written notice to IBT (Cayman). The agreement is terminable by IBT (Cayman) on
90 days' written notice to the Portfolio. The Administration Agreement provides
that neither IBT (Cayman) nor its personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or for
any act or omission in its services, except for willful misfeasance, bad faith
or negligence or reckless disregard of its obligations and duties under the
Agreement.
The Portfolio Trust has entered into an administrative agreement with IBT
(Cayman). As Administrative Agent of the Portfolios, IBT (Cayman) receives a fee
from each Portfolio, which is computed daily and paid monthly at an annual rate
of 0.025% on the first $200 million, 0.02% on the next $800 million and 0.01% on
assets in excess of $1 billion, subject to a minimum of $40,000 during the first
year of the Portfolio's operations, $45,000 in the second year of operations and
$50,000 in the third year.
From the Portfolio's commencement of operations through August 31, 1998,
the Portfolio incurred Administrative Agency fees in the amount of $67,796.
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 specifically
approved at least annually (i) by a vote of the holders of a "majority of the
outstanding voting securities" (as defined in the 1940 Act) of the Funds, or by
the Corporation's Directors, and (ii) by a vote of a majority of the Directors
of the Corporation who are not parties to such Distribution Agreement or
"interested persons" (as defined in the 1940 Act) of the Corporation, cast in
person at a meeting called for the purpose of voting on such approval. The
Distribution Agreement terminates automatically if assigned by either party
thereto and is terminable with respect to the Funds at any time without penalty
by a vote of a majority of the Directors of the Corporation or by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Funds (see "Additional Information"). The Distribution
Agreement is terminable with respect to the Funds by the Corporation's Directors
or shareholders of the Funds on 60 days' written notice to Edgewood. The
Agreement is terminable by the Distributor on 90 days' written notice to the
Corporation.
The Distributor is not obligated to sell any specific number of Shares. Under
a plan adopted in accordance with Rule 12b-1 of the 1940 Act on July 28, 1997,
Class B Shares of the Class A and Class B Fund are subject to a distribution
plan (the "Distribution Plan") and Class A Shares and Class B Shares of the
Class A and Class B Fund are subject to a service plan (the "Service Plan").
Under the Distribution Plan, Class B Shares will pay a fee to the Distributor in
an amount computed at an annual rate of 0.75% of the average daily net assets of
the Class A and Class B Fund represented by Class B Shares to finance any
activity which is principally intended to result in the sale of Class B Shares
of the Class A and Class B Fund subject to the Distribution Plan. A report of
the amounts expended pursuant to the Distribution Plan, and the purposes for
which such expenditures were incurred, must be made to the Directors of the
Corporation for review at least quarterly.
From the Funds' commencement of operations through August 31, 1998, the Funds
incurred service fees in the amount of $669 for the Class A and Class B Fund.
The Distribution Plan provides that it may not be amended to increase
materially the costs which the Fund may bear pursuant to the Distribution Plan
without shareholder approval and that other material amendments of the
Distribution Plan must be approved by the Directors of the Corporation, and by
the Directors who have no direct or indirect financial interest in the operation
of the Distribution Plan or any related agreement and are not "interested
persons" (as defined in the 1940 Act) of the Corporation ("Qualifying
Directors"), by vote cast in person at a meeting called for the purpose of
considering such amendments. While the Distribution Plan is in effect, the
selection and nomination of the Directors of the Corporation has been committed
to the discretion of the Qualifying Directors. The Distribution Plan has been
approved, and is subject to annual approval, by the Directors of the Corporation
and the Qualifying Directors, by vote cast in person at a meeting called for the
purpose of voting on the Distribution Plan. The Qualifying Directors voted to
approve the Distribution Plan at a meeting held on July 28, 1997. The
Distribution Plan is terminable with respect to the Class A and Class B Fund at
any time by a vote of a majority of the Qualifying Directors or by vote of the
holders of a majority of the Shares of the Fund.
Transfer Agent, Custodian and Fund Accountant
Federated Shareholder Services Company, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, serves as the transfer agent and dividend
disbursing agent for the Funds ("Transfer Agent" and "Dividend Disbursing
Agent"). As Transfer Agent and Dividend Disbursing Agent, Federated Shareholder
Services Company is responsible for maintaining account records detailing the
ownership of Fund Shares and for crediting income, capital gains and other
changes in Share ownership to shareholder accounts. Investors Bank & Trust
Company, 200 Clarendon Street, Boston, Massachusetts 02116 acts as the custodian
of the Funds' and the Portfolio's assets ("Custodian"). Pursuant to the
Custodian Contract with the Portfolio Trust, IBT is responsible for maintaining
the books and records of portfolio transactions and holding portfolio securities
and cash. In the case of foreign assets held outside the United States, IBT
employs various subcustodians who were approved in accordance with the
regulations of the SEC. The Custodian maintains portfolio transaction records.
IBT Fund Services (Canada) Inc., One First Canadian Place, King Street West,
Suite 2800, P.O. Box 231, Toronto, Ontario M5X1C8, provides fund accounting
services to the Funds and the Portfolio including (i) calculation of the daily
net asset value for the Funds and the Portfolio; (ii) monitoring compliance with
investment portfolio restrictions, including all applicable federal and state
securities and other regulatory requirements; and (iii) monitoring the Funds'
and Portfolio's compliance with the requirements applicable to a regulated
investment company under the Code.
The Transfer Agent, Custodian and Fund Accountant each has agreed to waive fees
and/or reimburse expenses with respect to the Class Y Fund for its first year of
operations.
See "Expenses" in the Prospectus.
Independent Accountants
The independent accountants of the Corporation and the Portfolio Trust are
PricewaterhouseCoopers LLP (formerly, Price Waterhouse LLP), 1177 Avenue of the
Americas, New York, New York 10036. The independent accountants conduct annual
audits of financial statements, assist in the preparation and/or review of
federal and state income tax returns and provide consulting as to matters of
accounting and federal and state income taxation for the Funds or Portfolio, as
the case may be.
Purchase of Shares
Shares are sold at their net asset value on days the New York Stock Exchange
("NYSE") and Federal Reserve Bank are open for business. The procedure for
purchasing Shares is explained in the Prospectus under "Purchase of Shares."
Conversion to Federal Funds
It is the policy of each Fund to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from shareholders must
be in federal funds or be converted into federal funds before shareholders begin
to earn dividends. Federated Shareholder Services Company acts as the
shareholder's agent in depositing checks and converting them to federal funds.
Redemption of Shares
The Funds redeem Shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after a Fund receives the
redemption request. Redemption procedures are explained in the Funds' Prospectus
under "Redemption of Shares." Although the Transfer Agent does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase (determined with reference
to the date of purchase of the Class B Shares of the Deutsche Fund from which
the shareholder exchanged) may be subject to a contingent deferred sales charge.
The amount of the contingent deferred sales charge is based upon the amount of
the administrative fee paid at the time of the original purchase by the
Distributor to the financial institution for services rendered, and the length
of time the investor remains a shareholder in the Class A and Class B Fund.
Should Financial Intermediaries elect to receive an amount less than the fee
that is stated in the Fund's Prospectus for servicing a particular shareholder,
the contingent deferred sales charge and/or holding period for that particular
shareholder will be reduced accordingly.
Redemption in Kind
Although the Corporation intends to redeem Shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole or in
part by a distribution of securities from the Funds' portfolio. In such a case,
the portfolio instruments to be distributed as redemption proceeds would be
valued in the same way as the Portfolio determines net asset value. The
portfolio instruments will be selected in a manner that the Directors of the
Corporation and Trustees of the Portfolio deem fair and equitable. To the extent
available, such securities will be readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
Systematic Withdrawal Program
The Systematic Withdrawal Program permits the Class A and Class B Fund
shareholders to request withdrawal of a specified dollar amount (minimum $100)
on either a monthly or quarterly basis from accounts with $10,000 minimum at the
time the shareholder elects to participate in the Systematic Withdrawal Program.
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the contingent deferred sales charge may
not exceed 12% annually with reference initially to the value of the Class B
Shares upon establishment of the Systematic Withdrawal Program and then as
calculated at the fiscal year end. Amounts that exceed the 12% annual limit for
redemption, as described, will be subject to the contingent deferred sales
charge. In determining the applicability of the contingent deferred sales
charge, the 12-month holding requirement for any new Class B Shares received
through an exchange will include the period for which the exchanged Class B
Shares were held. However, for purposes of meeting the $10,000 minimum account
value requirement, Class B Share account values will not be aggregated.
Exchange of Shares
An investor may exchange shares from any series of the Corporation (a
"Deutsche Fund") into shares of the same class of any other Deutsche Fund, as
described under "Exchange of Shares" in the Funds' Prospectus. Class A Shares,
when exchanged into another Deutsche Fund, may incur a sales load at the time as
required by that Deutsche Fund. For complete information, the prospectus
relating to the Fund into which a transfer is being made should be read prior to
the transfer. Requests for exchange are made in the same manner as requests for
redemptions. See "Redemption of Shares." Shares of the Fund to be acquired are
purchased for settlement when the proceeds from redemption become available. The
Corporation reserves the right to discontinue, alter or limit the exchange
privilege at any time.
Net Asset Value
The net asset value of each of the Funds' Shares is determined each day the
NYSE is open for regular trading and the Federal Reserve Bank is open for
business. (As of the date of this Statement of Additional Information, the NYSE
and banks are so open every weekday except for the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day
and Christmas Day.) This determination of net asset value of each Share of the
Funds is made once during each such day as of 3:00 p.m. (U.S. Eastern time) by
subtracting from the value of each Fund's total assets (i.e., the value of its
investment in the Portfolio and other assets) the amount of its pro rata share
liabilities, including expenses payable or accrued, and dividing the difference
by the number of Shares of each Share class or Fund outstanding at the time the
determination is made. It is anticipated that the net asset value of each Share
class and each Fund will remain constant at $1.00 and, although no assurance can
be given that it will be able to do so on a continuing basis, the Corporation
and the Portfolio Trust employ specific investment policies and procedures to
accomplish this result.
The value of the Portfolio's net assets (i.e., the value of its securities and
other assets less its liabilities, including expenses payable or accrued) is
determined at the same time and on the same days as the net asset value per
Share of the Funds is determined. The value of each Fund's investment in the
Portfolio is determined by multiplying the value of the Portfolio's net assets
by the percentage, effective for that day, which represents the Fund's share of
the aggregate beneficial interests in the Portfolio.
The securities held by the Portfolio are valued at their amortized cost.
Pursuant to a rule of the SEC, an investment company may use the amortized cost
method of valuation subject to certain conditions and the determination that
such method is in the best interests of the Funds' shareholders and the
Portfolio's other investors. The use of amortized cost valuations is subject to
the following conditions: (i) as a particular responsibility within the overall
duty of care owed to the Portfolio's investors, the Trustees of the Portfolio
Trust have established procedures reasonably designed, taking into account
current market conditions and the investment objective of its investors, to
stabilize the net asset value as computed; (ii) the procedures include periodic
review by the Trustees of the Portfolio Trust, as they deem appropriate and at
such intervals as are reasonable in light of current market conditions, of the
relationship between the value of the Portfolio's net assets using amortized
cost and the value of the Portfolio's net assets based upon available
indications of market value with respect to such portfolio securities; (iii) the
Trustees of the Portfolio Trust will consider what steps, if any, should be
taken if a difference of more than 1/2 of 1% occurs between the two methods of
valuation; and (iv) the Trustees of the Portfolio Trust will take such steps as
they consider appropriate, such as shortening the average portfolio maturity,
realizing gains or losses, establishing the value of the Portfolio's net assets
by using available market quotations, or reducing the value of interests in the
Portfolio, to minimize any material dilution or other unfair results which might
arise from differences between the two methods of valuation.
Such conditions also generally require that: (i) investments for the Portfolio
be limited to instruments which the Trustees of the Portfolio Trust determine
present minimal credit risks and which are of high quality as determined by any
nationally recognized statistical rating organization that is not an affiliated
person of the issuer of, or any issuer, guarantor or provider of credit support
for, the instrument, or, in the case of any instrument that is not so rated, is
of comparable quality as determined by the Investment Adviser under the general
supervision of the Trustees of the Portfolio Trust; (ii) a dollar-weighted
average portfolio maturity of not more than 90 days be maintained and no
instrument is purchased with a remaining maturity or a deemed maturity, of more
than 397 days within the meaning stated in the 1940 Act; (iii) the Portfolio's
available cash will be invested in such a manner as to reduce such maturity to
90 days or less as soon as is reasonably practicable, if the disposition of a
portfolio security results in a dollar-weighted average portfolio maturity of
more than 90 days; and (iv) no more than 5% of the Portfolio's total assets may
be invested in the securities of any one issuer (other than U.S. government
securities).
It is expected that the Funds will have a positive net income at the time of
each determination thereof. If for any reason a Fund's net income is a negative
amount, which could occur, for instance, upon default by an issuer of a
portfolio security, the Fund would first offset the negative amount with respect
to each shareholder account from the dividends declared during the month with
respect to those accounts. If and to the extent that negative net income exceeds
declared dividends at the end of the month, the Fund would reduce the number of
outstanding Fund Shares by treating each shareholder as having contributed to
the capital of the Fund that number of full and fractional Shares in his or her
account which represents his or her share of the amount of such excess. Each
shareholder would be deemed to have agreed to such contribution in these
circumstances by his or her investment in the Fund.
Performance Data
From time to time, the Funds may quote performance in reports, sales literature
and advertisements published by the Corporation. Current performance information
for the Funds may be obtained by calling the number provided on the cover page
of this Statement of Additional Information.
Yield
The current and effective yield for each class of Shares of the Funds may be
used from time to time in shareholder reports or other communications to
shareholders or prospective investors. Seven-day current yield is computed by
dividing the net change in account value (exclusive of capital changes) of a
hypothetical pre-existing account having a balance of one share at the beginning
of a seven-day calendar period by the value of that account at the beginning of
that period, and multiplying the return over the seven-day period by 365/7. For
purposes of the calculation, net change in account value reflects the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares, but does not
reflect realized gains or losses or unrealized appreciation or depreciation. In
addition, the Corporation may use an effective annualized yield quotation for
the Funds computed on a compounded basis by adding 1 to the base period return
(calculated as described above), raising the sum to a power equal to 365/7, and
subtracting 1 from the result.
The yield for the Class A Shares of the Class A and Class B Fund for the
seven-day, and the thirty-day, period ended August 31, 1998, was 4.85%. There is
no similar performance for the Class B Shares of the Class A and Class B Fund or
for the Class Y Fund through August 31, 1998 since there were no public sales.
General
The performance of each of the classes of Shares will vary from time to time
depending upon market conditions, the composition of the Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of the Funds' performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in either Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' Shares, including appropriate market indices or averages
or data from Lipper Analytical Services, Inc., Micropal, Inc., Ibbotson
Associates, Morningstar Inc., the Dow Jones Industrial Average and other
industry publications.
The performance of the Funds may also be compared to the performance of money
managers as reported in market surveys such as SEI Fund Evaluation Survey (a
leading data base of tax-exempt funds) or mutual funds such as those reported by
Lipper Analytical Services, Morningstar, Micropal, Money Magazine's Fund Watch
or Wiesenberger Investment Companies Service, each of which measures performance
following their own
specific and well-defined calculation measures.
The yield should not be considered a representation of the yield of a Fund in
the future since the yield is not fixed. Actual yields will depend on the type,
quality and maturities of the investments held for the Portfolio, changes in
interest rates on investments, and the Fund's expenses during the period.
Yield information may be useful for reviewing the performance of the Funds and
for providing a basis for comparison with other investment alternatives.
However, unlike bank deposits or other investments which pay a fixed yield for a
stated period of time, a Fund's yield does fluctuate, and this should be
considered when reviewing performance or making comparisons.
Economic and Market Information
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effects or expected
effects on the securities markets. Such discussions may take the form of
commentary on these developments by Fund portfolio managers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute.
Portfolio Transactions
The Adviser for the Portfolio places orders for all purchases and sales of
portfolio securities, enters into repurchase and reverse repurchase agreements
and executes loans of portfolio securities. Fixed-income securities are
generally traded at a net price with dealers acting as principal for their own
account without a stated commission. The price of the security usually includes
a profit to the dealer. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain money market instruments may be purchased directly from an issuer, in
which case no commissions or discounts are paid. From time to time certificates
of deposit may be purchased through intermediaries who may charge a commission
for their services.
The Adviser does not seek profits through short-term trading. However, it may on
behalf of the Portfolio dispose of any portfolio security prior to its maturity
if it believes such disposition is advisable even if this action realizes
profits.
Since brokerage commissions are not normally paid on investments which are made
for the Portfolio, turnover resulting from such investments should not adversely
affect the net asset value of the Portfolio. In connection with portfolio
transactions for the Portfolio, the Adviser intends to seek best price and
execution on a competitive basis for both purchases and sales of securities.
On those occasions when the Adviser deems the purchase or sale of a security to
be in the best interests of the Portfolio as well as other customers, the
Adviser to the extent permitted by applicable laws and regulations, may, but is
not obligated to, aggregate the securities to be sold or purchased with those to
be sold or purchased for other customers in order to obtain best execution,
including lower brokerage commissions, if appropriate. In such event, allocation
of the securities so purchased or sold as well as any expenses incurred in the
transaction are made by the Adviser in the manner it considers to be most
equitable and consistent with its fiduciary obligations to its customers,
including the Portfolio. In some instances, this procedure might adversely
affect the Portfolio.
Deutsche Bank AG or one of its subsidiaries or affiliates may act as one of the
agents of the Portfolio in the purchase and sale of portfolio securities when,
in the judgment of the Adviser, that firm will be able to obtain a price and
execution at least as favorable as other qualified brokers. As one of the
principal brokers for the Portfolio, Deutsche Bank AG may receive brokerage
commissions from the Portfolio.
Taxes
The following information supplements and should be read in conjunction with the
sections in the Prospectus entitled "Dividends and Distributions" and "Taxes."
United States Taxation
Each Fund intends to qualify and intends to remain qualified as a regulated
investment company (a "RIC") under Subchapter M of the Code. As a RIC, a Fund
must, among other things: (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to loans of stock and securities,
gains from the sale or other disposition of stock, securities or foreign
currency and other income (including but not limited to gains from options,
futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
value of the Fund's total assets is represented by cash, U.S. government
securities, investments in other RICs and other securities limited in respect of
any one issuer, to an amount not greater than 5% of the Fund's total assets, and
10% of the outstanding voting securities of such issuer and (ii) not more than
25% of the value of its total assets is invested in the securities of any one
issuer (other than U.S. government securities or the securities of other RICs).
As a RIC, the Fund (as opposed to its shareholders) will not be subject to
federal income taxes on the net investment income and capital gains that it
distributes to its shareholders, provided that at least 90% of its net
investment income and realized net short-term capital gains in excess of net
long-term capital losses for the taxable year is distributed.
To maintain a constant $1.00 per Share net asset value, the Trustees may direct
that the number of outstanding Shares be reduced pro rata. If this adjustment is
made, it will reflect the lower market value of portfolio securities and not
realized losses.
State and Local Taxes
Each Fund may be subject to state or local taxes in jurisdictions in which the
Fund is deemed to be doing business. In addition, the treatment of the Fund and
its shareholders in those states that have income tax laws might differ from
treatment under the federal income tax laws. For example, a portion of the
dividends received by shareholders may be subject to state income tax.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
The foregoing discussion is based on U.S. federal tax laws in effect on the date
hereof. These laws are subject to change by legislative or administrative
action, possibly with retroactive effect.
The foregoing discussion is a summary only and is not intended as a
substitute for careful tax planning. Prospective investors in Shares of the
Funds should consult their own tax advisers as to the tax consequences of
investing in such Shares, including the consequences under state, local and
other tax laws.
Description of Shares
The Corporation is an open-end management investment company organized as a
Maryland corporation on May 22, 1997. The Articles of Incorporation currently
permit the Corporation to issue 17,500,000,000 Shares of common stock, par value
$0.001 per Share, of which 5,000,000,000 Shares have been classified as Shares
of Deutsche US Money Market Fund and 10,000,000,000 shares have been classified
as shares of Deutsche Institutional US Money Market Fund. The Corporation
currently consists of eleven such series and two classes of Shares for 10 of the
Funds known as Class A Shares and Class B Shares. Five of the Funds also offer
Class C Shares and one Fund offers Class Y Shares.
Shareholders are entitled to one vote for each Share held on matters on which
they are entitled to vote. Shareholders in the Corporation do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Corporation may elect all of the Directors of the
Corporation if they choose to do so and in such event the other shareholders in
the Corporation would not be able to elect any Director. The Corporation is not
required and has no current intention to hold meetings of shareholders annually,
but the Corporation will hold special meetings of shareholders when in the
judgment of the Corporation's Directors it is necessary or desirable to submit
matters for a shareholder vote. Shareholders have under certain circumstances
(e.g., upon application and submission of certain specified documents to the
Directors by a specified number of shareholders) the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Directors. Shareholders also have the right
to remove one or more Directors without a meeting by a declaration in writing by
a specified number of shareholders. Shares have no preference, pre-emptive,
conversion or similar rights (except the automatic conversion of Class B Shares
into Class A Shares as discussed in the Prospectus under "Purchase of Shares").
Shares, when issued, are fully paid and non-assessable.
Stock certificates are not issued by the Corporation except upon written
request. No certificates will be issued for fractional Shares.
The Articles of Incorporation of the Corporation contain a provision permitted
under Maryland Corporation Law which under certain circumstances eliminates the
personal liability of the Corporation's Directors to the Corporation or its
shareholders.
The Articles of Incorporation and the By-Laws of the Corporation provide that
the Corporation indemnify the Directors and officers of the Corporation to the
full extent permitted by the Maryland Corporation Law, which permits
indemnification of such persons against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Corporation. However, nothing in the Articles of Incorporation
or the By-Laws of the Corporation protects or indemnifies a Director or Officer
of the Corporation against any liability to the Corporation or its shareholders
to which he would otherwise be subject by reason of willful willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Interests in the Portfolio have no preference, preemptive, conversion or similar
rights and are fully paid and non-assessable. The Portfolio Trust is not
required to hold annual meetings of investors, but will hold special meetings of
investors when, in the judgment of its Trustees, it is necessary or desirable to
submit matters for an investor vote. Each investor is entitled to a vote in
proportion to the share of its investment in the Portfolio.
Additional Information
As used in this Statement of Additional Information and the Prospectus, the term
"majority of the outstanding voting securities" (as defined in the 1940 Act)
currently means the vote of (i) 67% or more of the outstanding voting securities
present at a meeting, if the holders of more than 50% of the outstanding voting
securities are present in person or represented by proxy; or (ii) more than 50%
of the outstanding voting securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited financial
statements and annual reports containing financial statements audited by
independent auditors.
A shareholder's right to receive payment with respect to any redemption may
be suspended or the payment of the redemption proceeds postponed: (i) during
periods when the NYSE or foreign stock exchange is closed for other than
weekends and holidays or when regular trading on such exchange is restricted as
determined by the SEC by rule or regulation, (ii) during periods in which an
emergency exists which causes disposal of, or evaluation of the net asset value
of, portfolio securities to be unreasonable or impracticable, or (iii) for such
other periods as the SEC may permit.
Telephone calls to a Fund, the Transfer Agent, the Distributor, or Financial
Intermediaries with respect to shareholder servicing may be tape recorded. With
respect to the securities offered hereby, this Statement of Additional
Information and the Prospectus do not contain all the information included in
the Corporation's Registration Statement filed with the SEC under the 1933 Act
and the Corporation's and the Portfolio Trust's Registration Statement filed
under the 1940 Act. Pursuant to the rules and regulations of the SEC, certain
portions have been omitted. The Registration Statement including the exhibits
filed therewith may be examined at the office of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and the
Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
Financial Statements
Audited financial statements for the Class A and Class B Fund for the period
from commencement of operations through August 31, 1998, are incorporated herein
by reference to the Annual Report of the Funds, dated August 31, 1998 (File Nos.
333-7008 and 811-8227). A copy of such report will be provided without charge to
each person receiving this Statement of Additional Information. Audited
financial statements of the Class Y Fund dated August 31, 1998 accompany this
Statement of Additional Information.
<PAGE>
Bond, Note, and Commercial Paper Ratings
Moody's Investors Service, Inc. ("Moody's") Bond Ratings
Aaa--Bonds rated Aaa are judged to be of the "best quality." Aa1 is the rating
directly below Aaa, and then continues to Aa2, Aa3 to show relative strength
within the rating category.
Standard & Poor's ("S&P")
AAA--The AAA rating is the highest rating assigned to debt obligations and
indicates an extremely strong capacity to pay principal and interest.
Note and Variable Rate Investment Ratings
Moody's--MIG-1. Notes rated MIG-1 are judged to be of the best quality, enjoying
strong protection from established cash flow of funds for their services or from
established and broad-based access to the market for refinancing or both.
S&P--SP-1. SP-1 denotes a very strong or strong capacity to pay principal and
interest. Issues determined to possess overwhelming safety characteristics are
given a plus (+) designation (SP-1+).
Corporate Commercial Paper Ratings
Moody's--Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Prime-1 indicates highest quality repayment capacity of
rated issue.
S&P--Commercial Paper ratings are a current assessment of the likelihood of
timely payment of debts having an original maturity of no more than 365 days.
Issues rated A-1 have the greatest capacity for timely payment. Issues rated
"A-1+" are those with an "overwhelming degree of credit protection."
Other Considerations
Among the factors considered by Moody's in assigning bond, note and commercial
paper ratings are the following: (i) evaluation of the management of the issuer;
(ii) economic evaluation of the issuer's industry or industries and an appraisal
of speculative-type risks which may be inherent in certain areas; (iii)
evaluation of the issuer's products in relation to competition and customer
acceptance; (iv) liquidity; (v) amount and quality of long-term debt; (vi) trend
of earnings over a period of 10 years; (vii) financial strength of a parent
company and the relationships which exist with the issuer; and (viii)
recognition by management of obligations which may be present or may arise as a
result of public interest questions and preparations to meet such obligations.
Among the factors considered by S&P in assigning bond, note and commercial paper
ratings are the following: (i) trend of earnings and cash flow with allowances
made for unusual circumstances, (ii) stability of the issuer's industry, (iii)
the issuer's relative strength and position within the industry and (iv) the
reliability and quality
of management.
<PAGE>
Statement of Assets and Liabilities
Deutsche Institutional US Money Market Fund
August 31, 1998
Assets:
Investment in Deutsche Institutional US Money Market Portfolio,
at value ---------
Cash 6,500
Other accounts receivables 100
Deferred organization costs 6,294
Total assets 12,894
Liabilities:
Organization costs payable 6,294
Total liabilities 6,294
Net assets $ 6,600
Net Assets Consist of:
Capital stock, $0.001 par value (authorized 10,000,000,000 shares) 7
Paid-in Capital 6,593
Net assets $6,600 Computation of Net Asset Value, Redemption Price and
Offering Price Per Share Shares outstanding 6,600 Net asset value, redemption
price per share $ 1.00
The accompanying notes are an integral part of the financial statements.
<PAGE>
Notes to Financial Statements
Deutsche Funds, Inc.
August 31, 1998
Note 1 - General
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (the "Funds"). The accompanying
financial statement and notes relate to the Deutsche Institutional US Money
Market Fund, (the "Fund"). As of August 31, 1998, the Fund had no operations
other than the sale of 6,600 shares to Edgewood Services, Inc. The Fund will
seek to achieve its respective investment objective by investing substantially
all of its assets in the US Money Market Portfolio (US Dollar) (the "Portfolio",
one of the ten portfolios constituting the Deutsche Portfolios (the "Portfolio
Trust")) having substantially the same investment objective of the Fund.
The Company has not retained the services of an investment adviser since the
Fund will seek to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Portfolio is managed by Deutsche Fund
Management, Inc. ("DFM"), an indirect subsidiary of Deutsche Bank AG. Federated
Services Company intends to serve as Administrator to the Fund and Federated
Shareholder Services Company intends to serve as transfer agent and dividend
disbursing agent to the Fund. Edgewood Services, Inc. ("Edgewood") intends to
serve as distributor to the Fund (the "Distributor").
The Fund will record daily a pro-rata portion of the Portfolio's income and
expenses, including fees paid to DFM and the amortization of organization costs.
The Company has had no operations through August 31, 1998, other than those
relating to organizational matters. Organization costs incurred in connection
with the organization and initial registration of the Company were paid
initially by DFM and will be reimbursed by the Fund. Such organization costs
have been deferred and will be amortized ratably over a period of sixty months
from the commencement of operations of the Fund. The amount paid by the Fund on
any redemption by Edgewood (or any subsequent holder) of the Fund's initial
shares will be reduced by the pro-rata portion of any unamortized organization
costs of the Fund.
Note 2 - Significant Agreements and Transactions with Affiliates
The Company has retained the services of Federated Services Company as
Administrator. Under the Administration Agreement, Federated Services Company
will assist in the operations of the Fund subject to the direction and control
of the Board of Directors of the Company. For its services, Federated Services
Company will receive a fee from the Fund, which is computed daily and paid
monthly, at an annual rate of 0.045% of the Fund's average daily net assets. If
after the first year of operations of the Fund, the average net assets of the
Portfolio have not reached $325 million, the Administrator's fee would be
increased to an annual rate of 0.065% of the average daily net assets of the
Fund up to $200 million and 0.0525% of such assets in excess of $200 million for
the Fund's then current fiscal year.
The Company has entered into a distribution agreement with Edgewood. Edgewood
will serve as principal distributor for shares of the Fund. The Company has
adopted a Service and Distribution Plan in accordance with Rule 12b-1 of the
1940 Act whereby Class B Shares are subject to the Distribution Plan and Class A
Shares and Class B Shares are subject to the Service Plan.
Federated Shareholder Services Company will serve as the transfer agent and
dividend disbursing agent for the Fund. Federated Services Company and Federated
Shareholder Services Company are both affiliated with Edgewood. IBT Fund
Services (Canada) Inc.
will provide fund accounting services to the Fund.
DFM together with IBT Fund Services (Canada) Inc., its affiliates, and other
service providers have voluntarily agreed that they will waive their fees and/or
reimburse the Fund through at least one year from the Fund's commencement of
operations, to the extent necessary to maintain theFund's total operating
expenses (which includes expenses of the Fund and its pro-rata portion of
expenses of the corresponding Portfolio, but does not cover extraordinary
expenses during the period) at not more than 0.20% of the average daily net
assets.
<PAGE>
Report of Independent Accountants
To the Shareholder and Board of Directors of Deutsche Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Deutsche
Institutional US Money Market Fund (one of eleven separate funds constituting
Deutsche Funds, Inc., hereafter referred to as the "Fund") at August 31, 1998,
in conformity with generally accepted accounting principles. This financial
statement is the responsibility of the Fund's management; our responsibility is
to express an opinion on this financial statement based on our audit. We
conducted our audit of this financial statement in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036
October 16, 1998
<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 the Funds or by the Distributor to
sell or solicit any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Funds or the
Distributor to make such offer in such jurisdictions.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Filed in Part B)
(b) Exhibits:
(1) Copy of Articles of Amendment and Restatement of the
Registrant; (3)
(i) Conformed copy of Articles of Amendment; +
(ii) Conformed copy of Articles Supplementary of Registrant; +
(iii) Conformed copy of Articles of Amendment
Certificate of Correction; +
(2) Copy of By-Laws of the Registrant; (1)
(3) Not applicable;
(4) Copy of Specimen Certificate for shares of common
stock of the Registrant; (7)
(5) (i) Copy of Investment Advisory Agreement of the
Registrant; (3)
(ii) Copy of Investment Management Agreement; (5)
(6) (i) Conformed copy of Distributor's Contract including
Exhibits A and B thereto; (6)
(ii) Conformed copy of Exhibit C to the Distributor's
Contract; + (iii) Conformed copy of Mutual Funds Sales and
Service Agreement; (6)
(7) Not applicable;
(8) (i) Conformed copy of Custodian Agreement between
Investors Bank and Trust and the Registrant; (6)
(ii) Custodian Agreement between Deutsche Portfolios and
Investors Bank and Trust Company; (3) (iii) Conformed copy of
Delegation Agreement between Deutsche Portfolios and Investors
Bank and Trust Company including Appendix A-D; +
(9) (a)(i)Conformed copy of Master Agreement for
Administration Services between Federated Services
Company and the Registrant; (7)
- --------------------------------------------
+All exhibits have been filed electronically
1. Response is incorporated by reference to Registrant's Registration
Statement on Form N-1A filed on May 23, 1997.
(File Nos. 333-7008 and 811-8227)
3. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 4 on Form N-1A filed on August 1, 1997.
(File Nos. 333-7008 and 811-8227)
5. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 6 on Form N-1A filed on September 23, 1997.
(File Nos. 333-7008 and 811-8227)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed on April 13, 1998. (File Nos. 333-7008
and 811-8227)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed on September 1, 1998. (File Nos.
333-7008 and 811-8227)
<PAGE>
(9) (a)(ii)Administration Agreement between Deutsche
Portfolios and IBT Trust Company (Cayman)Ltd.; (3)
(b)(i)Conformed copy of Fund Accounting Agreement
between IBT Fund Services (Canada) Inc. and
the Registrant; (6)
(b)(ii)Conformed copy of Appendix A to Fund
Accounting Agreement between IBT Fund Services
(Canada) Inc. and the Registrant; +
(b)(iii)Copy of Fund Accounting Agreement between
Deutsche Portfolios and IBT Funds Services
(Canada) Inc.; (3)
(c) Conformed copy of Services Agreement; (6) (d) Form of
Amendment #1 to Exhibit 1 of the Services
Agreement; +
(10) Copy of Opinion and Consent of Counsel as to
legality of shares being registered; (5)
(11) (a) Conformed copy of consent of Independent Accountants
(Deutsche US Money Market Fund and Deutsche
Institutional US Money Market Fund); +
(b) Conformed copy of consent of Independent
Accountants (Deutsche Top 50 World, Deutsche
Top 50 Europe, Deutsche Top 50 Asia, Deutsche Top 50 US,
Deutsche European Mid-Cap Fund, Deutsche German Equity
Fund, Deutsche Japanese Equity Fund, Deutsche Global Bond
Fund and Deutsche European Bond Fund); +
(12) Not applicable;
(13) Copy of investment representation letters from
initial shareholders; (5)
(14) Not applicable;
(15) (i) Conformed copy of Distribution and Services Plan; (6)
(ii)Conformed copy of Exhibit C to the Distribution and
Service
Plan; (7)
(16) (a) Schedule for Computation of Fund Performance Data
Total Return (Deutsche Top 50 World Fund, Deutsche Top 50
Europe Fund; Deutsche Top 50 Asia Fund; Deutsche Top 50 US
Fund; Deutsche European Mid-Cap Fund; Deutsche German
Equity Fund; Deutsche Japanese Equity Fund; Deutsche
Global Bond Fund; and Deutsche European Bond Fund); (6)
(b) Schedule for Computation of Fund Performance Data Yield
(Deutsche Global Bond Fund, Deutsche European Bond
Fund); (6)
(17) Copy of Financial Data Schedules; +
(18) Conformed copy of Amended and Restated Multiple
Class Plan including Exhibit A; +
(19) Conformed copy of Power of Attorney. +
- ---------------------------------------------
+All exhibits have been filed electronically
3. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 4 on Form N-1A filed on August 1, 1997.
(File Nos. 333-7008 and 811-8227)
5. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 6 on Form N-1A filed on September 23, 1997.
(File Nos. 333-7008 and 811-8227)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed on April 13, 1998. (File Nos. 333-7008
and 811-8227)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed on September 1, 1998. (File Nos.
333-7008 and 811-8227)
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of October 9, 1998
-------------- ---------------------
Shares of Common Stock/Class A Shares
($0.001 per Share par value)
Deutsche European Mid-Cap Fund 66
Deutsche German Equity Fund 42
Deutsche Japanese Equity Fund 14
Deutsche Global Bond Fund 20
Deutsche European Bond Fund 13
Deutsche Top 50 World 55
Deutsche Top 50 Europe 43
Deutsche Top 50 Asia 24
Deutsche Top 50 US 70
Deutsche US Money Market Fund 61
Shares of Common Stock/Class B Shares
($0.001 per Share par value)
Deutsche European Mid-Cap Fund 51
Deutsche German Equity Fund 9
Deutsche Japanese Equity Fund 2
Deutsche Global Bond Fund 2
Deutsche European Bond Fund 5
Deutsche Top 50 World 5
Deutsche Top 50 Europe 11
Deutsche Top 50 Asia 7
Deutsche Top 50 US 11
Deutsche US Money Market Fund 3
Shares of Common Stock/Class Y Shares
($0.001 per Share par value)
Deutsche Institutional US Money Market Fund 66
Shares of Common Stock/Class C Shares
($0.001 per Share par value)
Deutsche European Mid-Cap Fund Not yet effective
Deutsche German Equity Fund Not yet effective
Deutsche European Bond Fund Not yet effective
Deutsche Top 50 Europe Not yet effective
Deutsche Top 50 US Not yet effective
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.
Item 28. Business and Other Connections of Investment Adviser:
Deutsche Fund Management, Inc. ("DFM"), DWS International Portfolio Management
GmbH ("DWS-IPM") and Deutsche Morgan Grenfell Investment Management
Inc.("DMGIM") are each indirect subsidiaries of Deutsche Bank AG.
Deutsche Funds Holding GmbH ("DFH"), a holding company organized under German
law, 93% owned by Deutsche Bank AG; sole shareholder of DFM (since 1/97); sole
shareholder of DWS-IPM (since 5/97).
Deutsche Bank AG, a publicly-held global financial institution, trading on the
Frankfurt Stock Exchange); sole shareholder of DFH (since 9/94).
Deutsche Bank North America Holding Corp. ("DBNAH"), a holding company organized
under US law, 100% owned by Deutsche Bank AG; sole shareholder of Deutsche Bank
U.S. Financial Markets Holding Corporation. Deutsche Bank U.S. Financial Markets
Holding Corporation, a holding company organized under US law, 100% owned by
DBNAH; sole shareholder of DMGIM.
Brian A. Lee, President and Managing Director of DFM (since 1/97); President and
Chief Operating Officer of Deutsche Bank Trust Company ("DBTC")(prior to 1997).
Christian Strenger, Chairman of the Board of Directors of DFM (since 1/97);
Managing Director/Spokesman of DFH (since 9/94); Managing Director/Spokesman of
DWS-IPM (since 5/97); Managing Director/Spokesman of DWS Deutsche
Gesellschaftfuer Wertpapiersparen mbH ("DWS-DGW)(since 8/91).
Udo Behrenwaldt, Director of DFM (since (5/97); Managing Director of DFH (since
9/94); Manager Director of DWS-IPM (since 5/97); Executive Director of DB
Investment Management, S.A. (since 7/87); Managing Director of DWS-DGW (since
11/75).
Holger Naumann, Director of DFM (since 1/97); Head of Participations at
DWS-DGW(since 12/95); Group Strategy Department at Deutsche Bank AG (prior to
12/95).
Bernd-Albrecht von Maltzan, Director of DFM (since 5/97); Divisional Board
Member of Deutsche Bank AG (since 7/96); Managing Director of Deutsche Morgan
Grenfell in Frankfurt and London (prior to 7/96).
Michael C. Lowengrub, Treasurer of DFM (since 1/97); Treasurer of DBTC (since
4/95); Director and Comptroller - Private Banking at Deutsche Bank AG-New York
Branch (since 10/92).
Thomas A. Curtis, Secretary of DFM (since 1/97); Secretary of CB Management
Corp. (since 2/96); Director and Counsel of Deutsche Bank AG-New York
Branch(since 7/95).
Axel-Guenther Benkner, Managing Director of DWS-IPM (since 5/97); Managing
Director of DFH (since 9/94); Managing Director of Deutsche
Vermoegensbildungsgesellschaft mbH (since 12/90); Managing Director of DWS-DGW
(since 2/91).
Heinz-Wilheim Fesser, Senior Portfolio Manager of DWS-IPM (since 5/97); Fixed
Income-Global at DWS-DGW (since 12/??).
Klaus Kaldmorgen, Senior Portfolio Manager of DWS-IPM (since 5/97);
Equities-Global at DWS-DGW (since 12/??).
Klaus Martini, Senior Portfolio Manager of DWS-IPM (since 6/97); Head of
Equities - Europe at DWS-DGW (since 7/84).
Elisabeth Weisenhorn, Senior Portfolio Manager of DWS-IPM (since 6/97); Head of
Equities - Germany at DWS-DGW (since 11/85).
Reinhold Volk, Chief Financial Officer of DWS-IPM (since 6/97); Head of
Controlling at DWS-DGW (since 10/86).
Mathias Geuckler, Chief Compliance Officer of DWS-IPM (since 6/97), Chief
Compliance Officer of DWS-DGW (since 11/92).
Gerhard Seifried, Chief Operations Officer of DWS-IPM (since 6/97); Head of Fund
Administration at DWS-DGW (since 10/85).
Guy Richard Stamberger, President, Chief Executive Officer and Director of
DMGIM(since 10/94); Director of DBTC (since 4/95); Managing Director of Deutsche
Bank Securities Corporation (prior to 10/94).
David Alan Zornitsky, Secretary and Treasurer of DMGIM (since 10/94); Assistant
Vice President at Deutsche Bank Securities Corporation (prior to 10/94).
<PAGE>
Item 29. Principal Underwriters:
(a) Edgewood Services, Inc. the Distributor for shares of the Registrant, acts
as principal underwriter for the following open-end investment companies,
including the Registrant: Deutsche Portfolios, Deutsche Funds, Inc.,
Excelsior Funds, Excelsior Funds, Inc., (formerly, UST Master Funds, Inc.),
Excelsior Institutional Trust, Excelsior Tax-Exempt Funds, Inc. (formerly,
UST Master Tax-Exempt Funds, Inc.), FTI Funds, FundManager Portfolios,
Great Plains Funds, Old Westbury Funds, Inc., Robertsons Stephens
Investment Trust, WesMark Funds, WCT Funds.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Lawrence Caracciolo Director, President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
Arthur L. Cherry Director, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
J. Christopher Donahue Director, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
Ronald M. Petnuch Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
Thomas P. Schmitt Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
Thomas P. Sholes Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
Ernest L. Linane Assistant Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
Thomas J. Ward Assistant Secretary, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
(c) Not applicable.
<PAGE>
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
Deutsche Funds, Inc. 5800 Corporate Drive
Pittsburgh, PA 15237-7010
Edgewood Services,Inc. P.O. Box 897
(Distributor) Pittsburgh, PA 15230-0897
Federated Shareholder Services
Company P.O. Box 8609
(Transfer Agent) Boston, MA 02266-8609
Federated Services Company Federated Investors Tower
(Administrator) 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Deutsche Fund Management, Inc. 31 West 2nd Street
(Adviser) New York, NY 10019
IBT Fund Services (Canada) Inc. One First Place
(Fund Accountant) King Street West, Suite 2800
P.O. Box 231
Toronto, Ontario M5X1C8
Investors Bank & Trust Co. 200 Clarendon Street
(Custodian) Boston, MA 02116
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Deutsche Funds, Inc., certifies
that it meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania, on the 2nd day of November, 1998.
DEUTSCHE FUNDS, INC.
BY: /s/ Brian A. Lee
Brian A. Lee, President
November 2, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Brian A. Lee Attorney In Fact November 2, 1998
Brian A. Lee For the Persons
Listed Below
NAME TITLE
Brian A. Lee* President
(Chief Executive Officer)
David M. Taylor* Treasurer
(Principal Financial and
Accounting Officer)
Edward C. Schmults* Director
Robert A. Wadsworth* Director
Werner Walbroel* Director
Christian Strenger* Director
Joseph E. Cheung* Director
* By Power of Attorney
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
any Senior Corporate Counsel of Federated Administrative Services, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for them and their names, place and stead, in any and all
capacities, to sign any and all documents to be filed with the Securities and
Exchange Commission on behalf of Deutsche Family of Funds, Inc. pursuant to the
Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment
Company Act of 1940, by means of the Securities and Exchange Commission's
electronic disclosure system known as EDGAR; and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to sign and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as each of them might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
/s/ Brian A. Lee President October _ 9, 1998
- --------------------------------- --------- -
Brian A. Lee (Principal Executive
Officer)
/s/ Joseph M. Cheung Treasurer October _ 9, 1998
- --------------------------------- --------- -
Joseph M. Cheung (Principal Financial
and Accounting
Officer)
/s/ Edward C. Schmults Director October _ 9, 1998
- --------------------------------- --------- -
Edward C. Schmults
/s/ Robert H. Wadsworth Director October _ 9, 1998
- --------------------------------- --------- -
Robert H. Wadsworth
/s/ Werner Walbroel Director October _ 9, 1998
- --------------------------------- --------- -
Werner Walbroel
/s/ Richard R. Burt Director October _ 9, 1998
- --------------------------------- --------- -
Richard R. Burt
/s/ Christian Strenger Director October _ 9, 1998
- --------------------------------- --------- -
Christian Strenger
/s/ Robert R. Gambee Secretary October _ 9, 1998
- --------------------------------- --------- -
Robert R. Gambee
Sworn to and subscribed before me this __9__ day of October, 1998
/s/ Cheri S. Good
Notary Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires November 19, 2001
Member, Pennsylvania Association of Notaries
Exhibit 1(ii) under Form N-1A
Exhibit 10 under Item 601 Reg. S-K
DEUTSCHE FUNDS, INC.
ARTICLES SUPPLEMENTARY
DEUTSCHE FUNDS, INC., a Maryland corporation having its principal office
in the State of Maryland in Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Corporation is authorized to issue 17,500,000,000 shares of
Common Stock, par value $0.001 per share, with an aggregate par value of
$17,500,000. These Articles Supplementary do not increase the total authorized
capital stock of the Corporation or the aggregate par value thereof.
SECOND: The Board of Directors of the Corporation hereby reclassifies all
of the authorized but unissued shares of Common Stock of the Corporation to
increase the number of shares allocated to each Series of the Corporation, other
than the Deutsche US Money Market Fund and the Deutsche Institutional US Money
Market Fund, and to add a third Class of Shares, which will be designated as
Class C, to each of the Deutsche European Mid-Cap Fund, the Deutsche German
Equity Fund, the Deutsche European Bond Fund, the Deutsche Top 50 Europe and the
Deutsche Top 50 US, such that the authorized Common Stock of the Corporation is
classified as follows:
The number of Shares of Common Stock classified and allocated to the
current Series of the Corporation's Common Stock are as follows:
Number of Shares of Common
Name of Series Stock Classified and Allocated
Deutsche German Equity Fund 250,000,000
Deutsche European Mid-Cap Fund 250,000,000
Deutsche Japanese Equity Fund 250,000,000
Deutsche European Bond Fund 250,000,000
Deutsche Global Bond Fund 250,000,000
Deutsche Top 50 Europe 250,000,000
Deutsche Top 50 World 250,000,000
Deutsche Top 50 Asia 250,000,000
Deutsche Top 50 US 250,000,000
Deutsche US Money Market Fund 5,000,000,000
Deutsche Institutional US Money
Market Fund 10,000,000,000
Unclassified 250,000,000
17,500,000,000
The Common Stock of each of the Deutsche European Mid-Cap Fund, Deutsche
German Equity Fund, Deutsche European Bond Fund, Deutsche Top 50 Europe
and Deutsche top 50 US shall have three Classes of shares, which shall be
designated Class A, Class B and Class C of each such Series. The Common
Stock of each of the Deutsche Japanese Equity Fund, Deutsche Global Bond
Fund, Deutsche Top 50 World, Deutsche Top 50 Asia and the Deutsche US
Money Market Fund shall have two Classes of shares, which will be
designated Class A and Class B of each such Series. 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
all Classes of Common Stock of each Series shall not exceed the authorized
number of shares of Common Stock of each 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.
The Common Stock of the Deutsche Institutional Money Market Fund shall
consist of a single class of shares of Common Stock.
THIRD: The shares of Common Stock of the Corporation classified and
reclassified hereby shall be subject to all of the provisions of the
Corporation's Charter relating to shares of stock of the Corporation generally
and, except as modified hereby, shall have the preferences, conversion and other
rights, voting powers, restrictions, limitation as to dividends, qualifications,
and terms and conditions of redemption set forth in Article FIFTH of the amended
and restated Charter, as amended, of the Corporation.
FOURTH: The stock of the Corporation has been classified and reclassified
by the Board of Directors pursuant to authority contained in the Charter of the
Corporation.
IN WITNESS WHEREOF, Deutsche Funds, Inc. has caused these presents to be
signed in its name and on its behalf on July 13, 1998, but its duly authorized
officers, who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
these Articles are true in all material respects, and that this statement is
made under the penalties of perjury.
ATTEST: DEUTSCHE FUNDS, INC.
/s/ Robert R. Gambee /s/ Brian A. Lee
Robert R. Gambee Brian A. Lee
Secretary President
Exhibit 9(d) Under Form N-1A
Exhibit 10 Under Item 601/Reg. S-K
Amendment #1 to
Exhibit 1
of the
Services Agreement
Deutsche European Mid-Cap Fund, Class A, Class B and Class C Shares
Deutsche German Equity Fund, Class A, Class B and Class C Shares
Deutsche Japanese Equity Fund, Class A and Class B Shares
Deutsche Global Bond Fund, Class A and Class B Shares
Deutsche European Bond Fund, Class A, Class B and Class C Shares
Deutsche Top 50 World, Class A and Class B Shares
Deutsche Top 50 Europe, Class A, Class B and Class C Shares
Deutsche Top 50 Asia, Class A and Class B Shares
Deutsche Top 50 US, Class A, Class B and Class C Shares
Deutsche US Money Market Fund, Class A and Class B Shares
Revised as of: July 31, 1998
Deutsche Funds, Inc.
By: /s/ Brian Lee
Name: Brian Lee
Title: President
Exhibit 9(a)i under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
MASTER AGREEMENT
for
ADMINISTRATION SERVICES
AGREEMENT made as of July 28,1997 by and between the Deutsche 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.
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
Error! Reference source not found.= business trust "Declaration of
Trust" "Articles of Incorporation" Articles of Incorporation (which have
already been prepared and filed), the By-laws and minutes of meetings of
the BoardError! Reference source not found.= business trust "Trustees"
"Directors" 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;
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 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,Error! Reference source
not found.= business trust "Trustee" "Director" 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
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.
(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 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;
(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
(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
(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.
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.
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.
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;
(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
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 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.
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.
<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, 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;
(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.
<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 FUNDS, INC.
By:/s/ Brian Lee
President
FEDERATED SERVICES COMPANY
By:/s/ Thomas J. Ward
Senior Vice President
<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
<PAGE>
TRANSFER AGENCY SERVICES
FEE SCHEDULE
Base Fee* Annual fee per fund, class or other subdivision. $18,000
Account Fee* Annual account charge( includes system access
and funds control and reconcilement)
Daily dividend fund $16.00
Non-daily dividend fund $10.00
Contingent deferred sales charge( monthly and quarterly
funds only) $ 5.00
Full Service* Annual fee per fund, class or other subdivision. $2,000 This fee
includes the first 400 accounts. Additional accounts are $5.00 per account.
(Full service includes servicing broker/dealers, financial planners, registered
investment advisors, third party intermediaries).
*All fees are annualized and will be prorated on a monthly basis for billing
purposes. Out of pocket expenses are not covered by these fees.
US Spokes
Transfer Agency Services
Out-of-Pocket Expenses Schedule
Out-of-Pocket Expenses include, but are not limited to, the following:
Postage (including overnight courier service)
Statement Stock
Envelopes
Telephones
Telecommunication Charges (including FAX and Dedicated Line Charges)
VRU Application
Closed account Charges
12b-1 Processing Fees
Third party expenses (i.e., NSCC fees) Fiduciary Subaccounting Fee Travel
(subject to prior approval by the Fund) Duplicating Forms Supplies
Microfiche Computer Access Charges Customized Programming and Reporting
Disaster Recovery Other as Incurred
<PAGE>
Services As Agent for
Record Shareholders
Base Fee* Annual fee per fund, class or other subdivision. $18,000
Account Fee* Annual account charge( includes system access
and funds control and reconcilement)
Daily dividend fund $16.00
Non-daily dividend fund $10.00
Contingent deferred sales charge( monthly and quarterly
funds only) $ 5.00
Full Service* Annual fee per fund, class or other subdivision. $2,000 This fee
includes the first 400 accounts. Additional accounts are $5.00 per account.
(Full service includes servicing broker/dealers, financial planners, registered
investment advisors, third party intermediaries).
*All fees are annualized and will be prorated on a monthly basis for billing
purposes. Out of pocket expenses are not covered by these fees.
offshore spokes
Services As Agent for
Record Shareholders
Out-of-Pocket Expenses Schedule
Out-of-Pocket Expenses include, but are not limited to, the following:
Postage (including overnight courier service)
Statement Stock
Envelopes
Telephones
Telecommunication Charges (including FAX and Dedicated Line Charges)
VRU Application
Closed account Charges
12b-1 Processing Fees
Third party expenses (i.e., NSCC fees) Fiduciary Subaccounting Fee Travel
(subject to prior approval by the Fund) Duplicating Forms Supplies
Microfiche Computer Access Charges Customized Programming and Reporting
Disaster Recovery Other as Incurred
Offshore Spokes
<PAGE>
ADMINISTRATIVE OR OPERATIONAL AGENCY SERVICES
FEE SCHEDULE
Hub Portfolios 3.5 basis points per Hub
- --------------
(minimum fee of $60,000 per Hub)
Domestic Spokes
First $200 million 6.5 basis points per Spoke
(minimum fee of $75,000 per Spoke)
Assets over $200 million 5.25 basis points per Spoke
(minimum fee of $75,000 per Spoke)
Offshore Spokes 2.5 basis points per Spoke
- ---------------
(minimum fee of $35,000 per Spoke)
The minimum fee per Hub and Spoke cluster (Hub with two Spokes, two classes of
shares on each domestic Spoke) for the first year of the contract will be
$75,000. The minimum fee per Hub and Spoke cluster in the second year of the
contract will be $125,000. The minimum fee is payable by the Hub with respect to
each Hub and Spoke cluster.
<PAGE>
SCHEDULE A
SERVICE LEVEL STANDARDS
The percentages set forth herein relate to all Investment Companies for
which the Company serves or in the future may serve as transfer agent,
administrator, cash management procurement agent and/or distributor, and which
are sponsored, advised, sub-advised or administered by Deutsche Fund Management,
Inc., or any of its affiliates, and do not relate individually to any one
specific Investment Company, except for service level standard numbers 2 and 4.
All fee credits are to be aggregated where there are instances of not meeting
objectives in respect of two or more different service level standards. A
waiver, whether partial, total, or conditional, of any fee credits, or right to
terminate this Agreement in a particular instance, does not constitute a waiver
in any other instance.
A monthly document evidencing the Company's performance with respect to
the service levels set forth below will be delivered to the Investment Company
by the Company, with a copy to Deutsche Fund Management, Inc., by the fifteenth
business day of the following month, or as soon thereafter as is reasonably
practicable. Such document shall be signed by a senior officer of the Company.
For purposes of this Article, the term "business day" shall mean each day
that the Investment Company is open for business as described in its prospectus.
For calculation purposes, a week is considered to be the period beginning on
Monday at 12:00 a.m., Eastern time, and concluding on the following Sunday at
11:59:59 p.m., Eastern time. When a month ends during the week, that entire
week's performance will be applied to the previous month.
<PAGE>
SERVICE LEVEL STANDARD 1: Manual Data Entry(by the Company)
Service Description
In some situations the Company will provide a manual data entry service to the
Investment Company for establishing new investor accounts, or for making file
corrections to existing account records, providing that information is presented
in a clear, standard English format. The Investment Company places great
importance on the accuracy of name, street address, city, state, zip code, and
taxpayer identification number (the "Critical Data"), and all other information
that the Company data enters to its shareholder accounting system. A monthly
report will be prepared by the Company indicating the total number of manual
data entry errors in comparison to the total number of manual data entries.
Objective
The Company's objective is to establish new accounts with a Data Accuracy Rate
(as defined below) of 100%, 98% of the time. The standard would apply if the
manual data entry processing exceeded on average 50 items a day.
Method of Calculation
The Company will calculate the Data Accuracy Rate for each calendar month by
subtracting from 100% the result of dividing (1) the total account record error
corrections with respect to the Critical Data received during the current month
for data entry errors made during the preceding 90 calendar days, by (b) the
total new accounts established by manual data entry during the preceding 90
calendar days (not including new accounts input in the current calendar month).
The Data Accuracy Rate will be compared to the schedule below to determine the
total percentage credit to total Transfer Agency fees(excluding out of pocket
expenses) billed to all Investment Companies for the month. This credit
information would also be passed to the Investment Company's Fund Accountant for
allocation against fees to be paid hereunder.
Fee Credits Manual Data Entry Accuracy Rate
Less Than 98% 97% 96% 95% 94%
Credit to Transfer
Agency Fees 1.0% 2.0% 3.0% 4.0% 5.0%
(excluding out of pocket expenses)
<PAGE>
SERVICE LEVEL STANDARD 2: Accuracy and Timeliness of Statements
Service Description
The Company will produce and mail periodic statements to all shareholders of the
Investment Company who are legally required to receive statements. For offshore
funds, "mailing" or "mailed" is defined as packaging and shipping the statements
in bulk to the fund's principal office located offshore or to another offshore
location designated by the fund. The Company will provide the Investment Company
with a mailing report from its mailing operation which will indicate the date on
which all shareholder statements were mailed. Year-end mailings are excluded
from this standard.
Objective
The Company's objective is to manage this service so that 99% of all statements
are accurate and are mailed no later than five (5) business days (excluding
weekend days) after statement rendition date.
Method of Calculation
Failure to meet this objective will result in a credit to the total cost of the
mailings, excluding postage, billed to the Investment Company affected by the
delay for the period. Using the mailing report, the Company will add the number
of days past the objective. That number would be compared to the schedule below
to determine the total percentage credit to the cost of the mailings, excluding
postage, billed to the Investment Company for that period.
Fee Credits
Business Days Past Statement Rendition Date
6 7 8 9
but less but less but less but less 10
than 7 than 8 than 9 than 10
------ ------ ------ -------
or more
Credit to the cost
of the mailing, 1% 2% 3%
4% 5%
excluding postage
<PAGE>
SERVICE LEVEL STANDARD 3: Accuracy and Timeliness of Daily Advices
Service Description
The Company will produce and mail, deliver or distribute an advice to Investment
Company shareholders ,who are legally required to receive advices, whenever a
financial transaction is posted to the shareholder's account, except where
suppressed pursuant to instructions received from the Investment Company. For
offshore funds, "mailing" or "mailed" is defined as packaging and shipping the
advices in bulk to the fund's principal office located offshore or to another
offshore location designated by the fund. The Company will provide the
Investment Company with a mailing report from its mailing operation which will
indicate the date on which all advices were mailed from such operation.
Objective
The Company's objective is to manage this service so that 99% of such advices
are accurate and are mailed by the fifth business day following the date of
transaction, except where suppressed pursuant to instructions received from the
Investment Company.
Method of Calculation
Should the Company fail to meet this objective, it would result in a credit to
the total cost of the mailing excluding postage billed to the Investment Company
for the month. The Company will calculate each week a weighted average percent
of the total daily advices produced that are mailed or sent late. For purposes
of such calculation the Company shall deem inaccurate advices to have been
mailed on the sixth business day past transaction date, summing the products,
and dividing the result by the total number of advices produced. This percentage
will then be compared to the schedule below to determine the total percentage
credit to the total cost of the mailing excluding postage billed to the
Investment Company for that month. This credit information would also be passed
to the Investment Company's Fund Accountant for allocation against fees to be
paid hereunder.
Fee Credits
Weighted Avg. Average Weekly Performance for Each Week Within the
Month
of Late Advices Wk. 1 Wk. 2 Wk. 3 Wk. 4 Wk. 5
1.01% to 2.00% 1.0% 1.5% 2.0% 2.5% 3.0%
2.01% to 3.00% 1.5% 2.0% 2.5% 3.0% 3.5%
3.01% to 4.00% 2.0% 2.5% 3.0% 3.5% 4.0%
4.01% or more 2.5% 3.0% 3.5% 4.0% 5.0%
<PAGE>
SERVICE LEVEL STANDARD 4: Timeliness of Distribution Checks and
Dividend Mailings
Service Description
Periodically, the Company will create and mail checks to certain Investment
Company's shareholders. For offshore funds, "mailing" or "mailed" is defined as
packaging and shipping the checks and dividend mailings in bulk to the fund's
principal office located offshore or to another offshore location designated by
the fund. The Company will provide the Investment Company with a mailing report
from its mailing operation, indicating the date on which all dividend or
distribution checks were mailed.
Objective
The Company's objective is to manage this service so that 99% of all checks are
mailed no more than five (5) business days from the payable date of the check.
Method of Calculation
Should the Company fail to meet this objective, it would result in a credit to
total cost of the mailing billed to the Investment Company affected by the
delay. Using the mailing report, the Company will calculate an average number of
business days past payable date for all late checks during the month for the
Investment Company. This average shall be determined by multiplying each late
advice by the number of business days pays payable date, summing those products,
and dividing the result by the total number of late checks. That number will be
compared to the schedule below to determine the percentage credit to the total
cost of the mailing,excluding postage, billed to the Investment Company for the
month. This fee credit information would also be passed to the Investment
Company's Fund Accountant for allocation against the fees to be paid hereunder.
Fee Credits
Business Days Past Date of Check
6 7 8
but less but less but less
than 7 than 8 than 9 10 or
------ ------ ------ -----
more
Credit to the 1.0% 2.5% 4.0% 5.0%
the total cost of the mailing,
excluding postage
<PAGE>
SERVICE LEVEL STANDARD 5: Telephone Responsiveness
Service Description
The Company will provide a 12-hour telephone answering service for shareholders'
agents or brokers and possibly shareholders of the Investment Company. Telephone
transactions may include, without limitation, exchanges and redemptions,
purchases where authorized, balance inquiries, N.A.V. and yield quotations, and
others. The percentage of calls answered by service representatives to calls
directed to the services representatives for the month represents the Company's
service level.
Objective
The Company's objective is to manage this service to a performance level of 98%
calls answered to calls received, and for purposes of the calculation method
below, shall omit any call terminated within 15 seconds.
Method of Calculation
Using data from its Automated Call Distribution system ("ACD"), the Company will
prepare a report for the Investment Company calculating the average telephone
responsiveness for each week. Calls directed to the automated voice response
system will not be included in the calculation. Such number will be compared to
the schedule below to determine the total percentage credit to Transfer Agency
fees, excluding out of pocket expenses, billed to the Investment Company for the
month. This credit information would also be passed to the Investment Company's
Fund Accountant for allocation against fees to be paid hereunder.
Fee Credits
% of Calls
Answered Average Performance Level for Each Week Within the Period
Less Than Wk. 1 Wk. 2 Wk. 3 Wk. 4 Wk. 5
98% 1.0% 1.5% 2.0% 2.5% 3.0%
97% 1.5% 2.0% 2.5% 3.0% 3.5%
96% 2.0% 2.5% 3.0% 3.5% 4.0%
95% 2.5% 3,0% 3.5% 4.0% 5.0%
<PAGE>
TRANSFER AGENCY SERVICES
FEE SCHEDULE
Base Fee* Annual fee per fund, class
or other subdivision.$18,000
(Class A Shares) $18,000 (Class
B Shares) $16,000 (Class C
Shares)
$18,000 (Offshore Spokes)
Account Fee* Annual account charge( includes system access
and funds control and reconcilement)
Daily dividend fund $16.00
Non-daily dividend fund $10.00
Contingent deferred sales charge( monthly and quarterly
funds only) $ 5.00
Full Service* Annual fee per domestic fund, class or other subdivision.$2,000
This fee includes the first 400 accounts. Additional accounts are $5.00 per
account. (Full service includes servicing broker/dealers, financial planners,
registered investment advisors, third party intermediaries).
*All fees are annualized and will be prorated on a monthly basis for billing
purposes. Out of pocket expenses are not covered by these fees.
DEUTSCHE FUNDS, INC.
By:/s/ Brian A. Lee
Name: Brian A. Lee
Title: President
FEDERATED SERVICES COMPANY
By:/s/ Thomas J. Ward
Name: Thomas J. Ward
Title: Senior Vice President
US Spokes/Offshore Spokes
As revised, July 31, 1998
<PAGE>
ADMINISTRATIVE OR OPERATIONAL AGENCY SERVICES
FEE SCHEDULE
Hub Portfolios 3.5 basis points per Hub
(minimum fee of $60,000 per Hub)
Domestic Spokes
First $200 million 6.5 basis points per Spoke
(minimum fee of $75,000 per Spoke)
Assets over $200 million 5.25 basis points per Spoke
(minimum fee of $75,000 per Spoke)
Offshore Spokes 2.5 basis points per Spoke
(minimum fee of $35,000 per Spoke)
The minimum fee per Hub and Spoke cluster (Hub with two Spokes, three classes of
shares on each domestic Spoke) for the first year of the contract will be
$75,000. The minimum fee per Hub and Spoke cluster in the second year of the
contract will be $125,000. The minimum fee is payable by the Hub with respect to
each Hub and Spoke cluster.
DEUTSCHE FUNDS, INC.
By:/s/ Brian A. Lee
Name: Brian A. Lee
Title: President
FEDERATED SERVICES COMPANY
By:/s/ Thomas J. Ward
Name: Thomas J. Ward
Title: Senior Vice President
As revised, July 31, 1998
Exhibit 15(ii) Under Form N-1A
Exhibit 10 Under Item 601/Reg. S-K
EXHIBIT C
to the
Distribution and Service Plan
Classes in Distribution Plan
Deutsche European Mid-Cap Fund - Class C Shares
Deutsche European Bond Fund - Class C Shares
Deutsche German Equity Fund - Class C Shares
Deutsche Top 50 Europe - Class C Shares
Deutsche Top 50 US - Class C Shares
The Distribution Plan is adopted by the Corporation with respect to the Classes
of Shares of the portfolios of the CorporationError! Reference source not
found.=business trust "Trust" "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 31st day of July, 1998.
By: /s/ Brian Lee
Name: Brian Lee
Title: President
Exhibit 11(a) under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
Consent of Independent Accountants
We hereby consent to the incorporation by reference into the Prospectus and the
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 3 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated October 16, 1998 relating to the financial
statements and financial highlights appearing in the August 31, 1998 Annual
Report of the Deutsche US Money Market Fund which is also incorporated by
reference into the Registration Statement. We also consent to the use of our
report dated October 16, 1998 relating to the financial statement of the
Deutsche Institutional US Money Market Fund, (together with Deutsche US Money
Market Fund, two of the eleven funds constituting Deutsche Funds, Inc.) which is
included in the Registration Statement. We also consent to the references to us
under the heading "Financial Highlights" in the Prospectus, under the headings
"Independent Accountants" and "Financial Statements" in the Statement of
Additional Information.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036
November 2, 1998
Exhibit 11(b) under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
Consent of Independent Accountants
We hereby consent to the incorporation by reference into the Prospectus and the
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 3 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated October 16, 1998 relating to the financial
statements and financial highlights appearing in the August 31, 1998 Annual
Report of the Deutsche Top 50 World, Deutsche Top 50 Europe, Deutsche Top 50
Asia, Deutsche Top 50 US, Deutsche European Mid-Cap Fund, Deutsche German Equity
Fund, Deutsche Japanese Equity Fund, Deutsche Global Bond Fund, and Deutsche
European Bond Fund (nine of the eleven funds constituting Deutsche Funds, Inc.)
which are also incorporated by reference into the Registration Statement. We
also consent to the references to us under the heading "Financial Highlights" in
the Prospectus, under the headings "Independent Accountants" and "Financial
Statements" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036
November 2, 1998
Exhibit 6(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
Exhibit C
to the
Distributor's Contract
DEUTSCHE FUNDS, INC.
DEUTSCHE EUROPEAN MID-CAP FUND - CLASS C SHARES
DEUTSCHE EUROPEAN BOND FUND - CLASS C SHARES
DEUTSCHE GERMAN EQUITY FUND - CLASS C SHARES
DEUTSCHE TOP 50 EUROPE - CLASS C SHARES
DEUTSCHE TOP 50 US - CLASS C SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated July 28, 1997, between Deutsche 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 July 28, 1997 between Deutsche Funds, Inc. and Edgewood Services,
Inc. Deutsche 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 31st day of July, 1998.
DEUTSCHE FUNDS, INC.
By: /s/ Brian Lee
EDGEWOOD SERVICES, INC.
By: /s/ Lawrence Caracciolo
Exhibit 18 Under Form N-1A
Exhibit 10 Under Item 601/Reg. S-K
DEUTSCHE FUNDS, INC.
AMENDED AND RESTATED MULTIPLE CLASS PLAN
This Multiple Class Plan ("Plan") is adopted by DEUTSCHE 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 Institutional
US Money Market Fund, set forth on exhibit(s) hereto offer two classes of
shares: Class A Shares and Class B Shares. Deutsche European Mid-Cap Fund,
Deutsche European Bond Fund, Deutsche German Equity Fund, Deutsche Top 50 Europe
and Deutsche Top 50 US offer a third class of shares: Class C Shares. Deutsche
Institutional US Money Market Fund offers one class of shares.
b. CATEGORIES/TYPES OF INVESTORS ELIGIBLE TO PURCHASE EACH CLASS OF
SHARES:
Class A Shares, Class B Shares and Class C Shares of the fluctuating
value funds are sold to the same types of investors. The investor is able to
choose among a front-end sales load (Class A Shares), a contingent deferred
sales charge (Class B Shares), or a hybrid load (Class C Shares). Class A Shares
of Deutsche US Money Market Fund are offered generally to investors. Class B
Shares of Deutsche US Money Market Fund are designed primarily for temporary
investment as part of a special investment program in Class B Shares of the
fluctuating funds. Shares of Deutsche Institutional US Money Market Fund are
sold only to certain qualified investors as defined in the prospectus.
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 these Class A Shares are not subject
to a sales charge as described in the Corporation's registration statement.
Class A Shares purchased without an initial sale 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 Services, Inc. may be charged a contingent
deferred sales charge of 1.00% for redemptions made within one full year of
purchase.
Class B Shares and Class C Shares of the fluctuating funds are sold
without an initial sales charge, but are subject to a maximum contingent
deferred sales charge of 5.0% and 1.0% respectively, as described in the
Corporation's registration statement.
Class A Shares and Class B Shares of Deutsche US Money Market Fund
and Shares of Deutsche Institutional US Money Market Fund are offered without an
initial sales charge, but Class B Shares are subject to a contingent deferred
sales charge as described in the Corporation's registration statement.
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 and Class C 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 and Class C Shares.
e. MINIMUM INVESTMENTS: The minimum initial purchase for all classes
is $5,000 and the minimum subsequent purchase is $500, except for Shares of
Deutsche Institutional US Money Market Fund, which has an aggregate $5,000,000
minimum initial investment amount or intent to invest in the Corporation's
funds, and has no minimum subsequent purchase amount.
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.
<PAGE>
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.
h. EXCHANGE PRIVILEGES.
Holders of Class A Shares, Class B Shares or Class C Shares of the
Funds may exchange their Shares for the same class of other Funds without a
sales charge. There is no exchange privilege for Deutsche Institutional US Money
Market Fund.
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 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.
<PAGE>
EXHIBIT A
to the
Amended & Restated Multiple Class Plan
DEUTSCHE FUNDS, INC.
Deutsche European Bond Fund - Class A, Class B and Class C Shares
Deutsche European Mid-Cap Fund - Class A, Class B and Class C Shares
Deutsche German Equity Fund - Class A, Class B and Class C Shares
Deutsche German Bond Fund - Class A and Class B Shares Deutsche
Global Bond Fund - Class A and Class B Shares
Deutsche Japanese Equity Fund - Class A and Class B Shares
Deutsche Top 50 Asia - Class A and Class B Shares
Deutsche Top 50 Europe - Class A, Class B and Class C Shares
Deutsche Top 50 US - Class A, Class B and Class C Shares
Deutsche Top 50 World - Class A and Class B Shares
Deutsche US Money Market Fund - Class A and Class B Shares
Deutsche Institutional US Money Market Fund
This Multiple Class Plan is adopted by Deutsche Funds, Inc.
with respect to the Classes of Shares of the Fund of the Corporation set forth
above.
Witness the due execution hereof this 31st day of July, 1998.
DEUTSCHE FUNDS, INC.
By: /s/ Brian Lee
Name: Brian Lee
Title: President
Exhibit 8(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
DELEGATION AGREEMENT
AGREEMENT, dated as of July 28, 1997 by and between Investors Bank & Trust
Company, a Massachusetts trust company (the "Delegate"), and Deutsche
Portfolios, a trust formed under the laws of New York (the "Fund").
WHEREAS, pursuant to the provisions of Rule 17f-5(b) under the Investment
Company Act of 1940, and subject to the terms and conditions set forth herein,
the Board of Directors of the Fund desires to delegate to the Delegate, and the
Delegate hereby agrees to accept and assume, certain responsibilities described
herein concerning Assets held outside of the United States.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Definitions
Capitalized terms in this Agreement have the following meanings--
a. Assets
Assets means any of Fund's investments (including foreign
currencies) for which the primary market is outside the United States, and such
cash and cash equivalents as are reasonably necessary to effect Fund's
transactions in such investments.
b. Authorized Representative
Authorized Representative means any one of the persons who are
empowered, on behalf of the parties to this Agreement, to receive notices from
the other party, to send notices to the other party, to add or delete
jurisdictions pursuant to Article 4, and to otherwise bind the respective
parties with respect to the subject matter of this Agreement.
c. Board
Board means the Board of Directors (or the body authorized to
exercise authority similar to that of the board of directors of a corporation)
of Fund.
d. Compulsory Securities Depository
Compulsory Securities Depository means a Securities Depository the
use of which is mandatory (i) by law or regulation; (ii) because securities
cannot be withdrawn from the depository; or (iii) because maintaining securities
outside the Securities Depository is not consistent with prevailing custodial
practices.
e. Eligible Foreign Custodian
Eligible Foreign Custodian has the meaning set forth in Rule
17f-5(a)(1).
f. Foreign Custody Manager
Foreign Custody Manager has the meaning set forth in Rule
17f-5(a)(2).
h. Monitor
Monitor has the meaning used in Rule 17f-5(c)(3).
i. Permissible Foreign Custodian
Permissible Foreign Custodian means any person with whom Assets may
be placed and maintained outside the United States under (i) the Investment
Company Act of 1940 or (ii) an order of the U.S. Securities and Exchange
Commission, without regard to Rule 17f-5.
j. Securities Depository
Securities Depository has the meaning set forth in Rule 17f-5(a)(6).
2. Representations
a. Delegate's Representations
Delegate represents that it is a trust company chartered under the
laws of the Commonwealth of Massachusetts. Delegate confirms that Fund's
existing foreign subcustody arrangements are in conformity with Article 7.
b. Fund's Representations
Fund represents that the Board has adopted the resolution attached
as Appendix G.
3. Jurisdictions Covered
a. Initial Jurisdictions
The authority delegated by this Agreement applies only with respect
to Assets held in the jurisdictions listed in Appendix A. Delegate shall have no
responsibility for the selection, evaluation or Monitoring of any jurisdiction
in which the Fund invests or holds Assets.
b. Added Jurisdictions
Jurisdictions may be added to Appendix A by written agreement in the
form of Appendix B. Delegate's responsibility and authority with respect to any
jurisdiction so added will commence at the later of (i) the time that Delegate's
Authorized Representative and Board's Authorized Representative have both
executed a copy of Appendix B listing such jurisdiction, or (ii) the time that
Delegate's Authorized Representative receives a copy of such fully executed
Appendix B.
c. Withdrawn Jurisdictions
Board may withdraw its delegation with respect to any jurisdiction
upon written notice to Delegate. Delegate may withdraw its acceptance of
delegated authority with respect to any jurisdiction upon written notice to
Board. Thirty days (or such longer period as to which the parties agree) after
receipt of any such notice by the Authorized Representative of the party other
than the party giving notice, Delegate shall have no further responsibility or
authority under this Agreement with respect to the jurisdiction or jurisdictions
is to which authority is withdrawn, except that the Fund may withdraw authority
at any time as to any jurisdiction and Delegate may withdraw its acceptance of
delegated authority as to any jurisdiction upon less than thirty days notice if
Delegate states in its notice that it believes it cannot perform its
responsibilities as to the jurisdiction for which it is withdrawing.
4. Delegation of Authority to Act as Foreign Custody Manager
a. Selection of Eligible Foreign Custodians
Subject to the provisions of this Agreement and the requirements of
Rule 17f-5 (and any other applicable law), Delegate is authorized and directed
to place and maintain Assets in the care of any Eligible Foreign Custodian or
Custodians selected by it in each jurisdiction to which this Agreement applies.
b. Contracts With Eligible Foreign Custodians
Subject to the provisions of this Agreement and the requirements of
Rule 17f-5 (and any other applicable law), Delegate is authorized to enter into,
on behalf of Fund, such written contracts governing Fund's foreign custody
arrangements with such Eligible Foreign Custodians as Delegate deems
appropriate.
5. Delegation of Authority to Place Assets With Permissible Foreign
Custodians
Subject to the requirements of the Investment Company Act of 1940 (and any
other applicable law or order), Delegate is authorized to place and maintain
Assets in the care of any permissible Foreign Custodian or Custodians in each
jurisdiction to which this Agreement applies and to enter into, on behalf of
Fund, such written contracts governing Fund's foreign custody arrangements with
such Permissible Foreign Custodians as Delegate deems appropriate. Articles 6,
7b, 7c, 7d, and 8 of this Agreement shall not apply to Delegate's exercise of
authority under this Article 5.
6. Monitoring of Eligible Foreign Custodians and Contracts
In each case in which Delegate has exercised the authority delegated under
this Agreement to place Assets with an Eligible Foreign Custodian, Delegate is
authorized to, and shall, on behalf of Fund, establish a system to Monitor the
appropriateness of maintaining Assets with such Eligible Foreign Custodian. In
each case in which Delegate has exercised the authority delegated under this
Agreement to enter into a written contract governing Fund's foreign custody
arrangements, Delegate is authorized to, and shall, on behalf of Fund, establish
a system to Monitor the appropriateness of such contract.
7. Guidelines and Procedures for the Exercise of Delegated Authority
a. Selection of Eligible Foreign Custodians
In exercising the authority delegated under this Agreement to place
Assets with an Eligible Foreign Custodian, Delegate shall determine that Assets
will be subject to reasonable care, based on the standards applicable to
custodians in the market in which the Assets will be held, after considering all
factors relevant to the safekeeping of such assets, including, without
limitation;
i. The Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the physical
protections available for certificated securities (if
applicable), the method of keeping custodial records, and the
security and data protection practices;
ii. Whether the Eligible Foreign Custodian has the financial strength to
provide reasonable care for Assets;
iii. The Eligible Foreign Custodian's general reputation and
standing and, in the case of a Securities Depository, the
Securities Depository's operating history and number of
participants;
iv. Whether Fund will have jurisdiction over and be able to
enforce judgments against the Eligible Foreign Custodian, such
as by virtue of the existence of any offices of the Eligible
Foreign Custodian in the United States or the Eligible Foreign
Custodian's consent to service of process in the United
States; and
v. In the case of an Eligible Foreign Custodian that is a
Securities Depository, any additional factors and criteria set
forth in Appendix C to this Agreement.
b. Evaluation of Written Contracts
In exercising the authority delegated under this Agreement to enter
into written contracts governing Fund's foreign custody arrangements with an
Eligible Foreign Custodian, Delegate shall determine that such contracts (or, in
the case of a Securities Depository, such contract, the rules or established
practices or procedures of the depository, or any combination of the foregoing)
provide reasonable care for Assets based on the standards applicable to Eligible
Foreign Custodians in the relevant market after considering all relevant
factors, including those set forth in a. above. In making this determination,
Delegate shall ensure that the terms of such contracts comply with the
requirements of Rule 17f-5(c)(2).
d. Monitoring
In exercising the authority delegated under this Agreement to
establish a system to Monitor the appropriateness of maintaining Assets with an
Eligible Foreign Custodian or the appropriateness of a written contract
governing Fund's foreign custody arrangements, Delegate shall consider the
factors noted in a. and b. above and any factors and criteria set forth in
Appendix D to this Agreement.
8. Standard of Care
In exercising the authority delegated under this Agreement, Delegate
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of an investment company
registered under the Investment Company Act of 1940 would exercise.
9. Reporting Requirements
Delegate agrees to provide written reports notifying Board of the
placement of Assets with a particular Eligible Foreign Custodian or Permissible
Foreign Custodian and any of any material change in Fund's foreign custody
arrangements. Such reports shall be provided to Board quarterly for
consideration at the next regularly scheduled meeting of the Board or earlier if
deemed necessary or advisable by the Delegate in its sole discretion. Such
report shall, among other things, confirm jurisdictions in which there have been
no material changes in foreign custody arrangements. The Delegate shall give
reasonably prompt notice to the Board of any jurisdictions in which the Delegate
believes it can no longer perform the services required by this Agreement.
10. Provision of Information Regarding Jurisdictions
With respect to the jurisdictions listed in Appendix A, or added thereto
pursuant to Article 4, Delegate agrees to provide annually to Board, such
information relating to Country Risk, if available, as is specified in Appendix
E to this Agreement.
<PAGE>
11. Limitation of Liability.
Notwithstanding anything in this Agreement to the contrary, in no event
shall the Delegate 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 Delegate 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 Delegate or any Indemnified Party under
this Agreement, except for any Claim resulting solely from a breach of the
standard of care set forth in Article 8 or the negligence, willful misfeasance
or bad faith of the Delegate or any Indemnified Party. Neither the Delegate nor
the Indemnified Parties shall be liable for, and the Delegate and the
Indemnified Parties shall be indemnified against, any Claim arising as a result
of:
i. Any act or omission by the Delegate or any Indemnified Party
in reasonable good faith reliance upon the terms of this
Agreement, any resolution of the Board, telegram, telecopy,
notice, request, certificate or other instrument reasonably
believed by the Delegate to genuine;
ii. Any information which the Delegate provides or does not to provide
under Section 11 hereof; or
iii. 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 or computers (hardware or software) and
computer facilities, the unavailability of energy sources and other similar
happenings or events;
provided that such Claim does not arise from a breach of the standard of care
set forth in Article 8 hereof or the negligence, willful misfeasance or bad
faith of the Delegate or Indemnified Party.
12. No Additional Compensation
Delegate agrees to perform its responsibilities hereunder without any
additional compensation from Fund beyond Delegate's compensation as set forth in
the Custodian Agreement between the Fund and the Delegate. The Fund shall bear
all expenses related to the custody of Assets, including expenses related to the
relocation of Assets, as set forth in such Custodian Agreement between the Fund
and the Delegate.
13. Effectiveness and Termination of Agreement
This Agreement shall be effective as of the later of the date of execution
on behalf of Board or Delegate and shall remain in effect until terminated as
provided herein. This Agreement may be terminated at any time, without penalty,
by written notice from the terminating party to the non-terminating party.
Termination will become effective 30 days after receipt by the non-terminating
party of such notice.
14. Authorized Representatives and Notices
The respective Authorized Representatives of Fund and Board, and the
addresses to which notices and other documents under this Agreement are to be
sent to each, are as set forth in Appendix F. Any Authorized Representative of a
party may add or delete persons from that party's list of Authorized
Representatives by written notice to an Authorized Representative of the other
party.
<PAGE>
15. Governing Law
Fund and Delegate intend that the delegation contemplated hereby shall be
made in accordance with Rule 17f-5 and that the provisions hereof shall be
interpreted accordingly. This Agreement shall otherwise be construed in
accordance with the laws of the Commonwealth of Massachusetts without regard to
principals of choice of law.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, Authorized Representatives of Board and of Delegate
have affixed their signatures as of the date first written above.
INVESTORS BANK & TRUST COMPANY
By: ___________________________________
Name:
Title:
DEUTSCHE PORTFOLIOS
By:____________________________________
Name:
Title:
<PAGE>
List of Appendices
A -- Jurisdictions Covered
B -- Additional Jurisdictions Covered
C -- Additional Factors and Criteria To Be Applied in the Selection of
Eligible Foreign Custodians That Are Securities Depositories
D -- Additional Factors and Criteria To Be Applied in Entering Into Written
Contracts Governing Foreign Custody Arrangements
E -- Information Regarding Country Risk
F -- Authorized Representatives
G -- Resolution of the Board
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A
Jurisdictions Covered
Top 50 World Top 50 Europe Provesta Global Bond
- ------------ ------------- -------- -----------
(cont.)
- -------
<S> <C> <C> <C>
Australia Austria Austria Greece
Austria Belgium Belgium Ireland
Belgium Denmark France Italy
Canada Finland Germany Japan
Denmark France Italy Netherlands
Finland Germany Netherlands New Zealand
France Ireland Norway Norway
Germany Italy Spain Portugal
Hong Kong Luxembourg Sweden Slovak Republic
India Netherlands Switzerland South Africa
Indonesia Norway United Kingdom Spain
Ireland Portugal Sweden
Italy Spain Investa
-------
Switzerland
Japan Sweden Germany United Kingdom
Luxembourg Switzerland Netherlands
Netherlands United Kingdom Luxembourg European Bond
-------------
New Zealand Austria
Norway Top 50 Asia Japanese Equity Belgium
----------- ---------------
Portugal Australia Japan Czech Republic
Singapore Hong Kong Denmark
South Africa India Global Bond Finland
-----------
South Korea Indonesia Australia France
Spain Japan Austria Germany
Sweden Malaysia Belgium Greece
Switzerland Phillipines Canada Ireland
Taiwan Singapore Czech Republic Italy
United Kingdom South Korea Denmark Netherlands
Taiwan Finland Norway
Thailand France Portugal
Germany Slovak Republic
Spain
Sweden
Switzerland
United Kingdom
</TABLE>
<PAGE>
APPENDIX B
Additional Jurisdictions Covered
Pursuant to Article 4 of this Agreement, Delegate and Board agree that the
following jurisdiction shall be added to Appendix A:
Poland
INVESTORS BANK & TRUST COMPANY
By: /s/ Andrew M. Nesvet
Name: Andrew M Nesvet
Title: Director, Client Management
DEUTSCHE PORTFOLIOS
By: /s/ Holger Naumann
Name: Holger Naumann
Title: Treasurer
By: /s/ Joseph Bernhart
Name: Joseph Bernhart
Title: Assistant Treasurer
DATE: August 14, 1998
<PAGE>
APPENDIX C
Additional Factors and Criteria To Be
Applied in the Selection of Eligible Foreign
Custodians That Are Securities Depositories
In addition to the factors set forth in Rule 17f-5(c)(1), in selecting
Eligible Foreign Custodians that are Securities Depositories, Delegate shall
consider the following factors, if such information is available (check all that
apply):
_________ None
____X_____ Whether use is voluntary or compulsory
____X_____ Ownership
____X_____ Operating History
____X_____ Established rules, practices and procedures
____X_____ Membership
____X_____ Financial strength
____X_____ Governing regulatory body
_________ Other (list below):
<PAGE>
APPENDIX D
Factors and Criteria To Be Applied
in the Establishing Systems For the Monitoring of
Foreign Custody Arrangements and Contracts
In establishing systems for the Monitoring of foreign custody arrangements
and contracts with Eligible Foreign Custodians, Delegate shall consider the
following factors, if such information is available (check all that apply):
_________ None
____X_____ Operating performance
____X_____ Established practices and procedures
____X_____ Relationship with market regulators
____X_____ Contingency planning
_________ Other (list below):
<PAGE>
APPENDIX E
Information Regarding Country Risk
To aid the Board in its determinations regarding Country Risk, Delegate
will furnish Board annually with respect to the jurisdictions specified in
Article 3, the following information:
I. Copy of Subcustodian Agreement
II. Legal Opinion, if available, with regard to:
A. Access to books and records by the Fund's accountants
B. Ability to recover assets in the event of bankruptcy of a custodian
C. Ability to recover assets in the event of a loss
D. Likelihood of expropriation or nationalization, if available
E. Ability to repatriate or convert cash or cash equivalents
III. Audit Report
IV. Copy of Balance Sheet from Annual Report
V. Summary of Central Depository Information
VI. Country Profile Matrix containing market practice for:
A. Delivery versus payment
B. Settlement method
C. Currency restrictions
D. Buy-in practice
E. Foreign ownership limits
F. Unique market arrangements
<PAGE>
APPENDIX F
Authorized Representatives
Notices under this Agreement shall be sent to, and shall be executed on
behalf of the respective parties by, any one of the following --
1. Board
a. ________________________________________ (name)
________________________________________ (title)
________________________________________ (address)
b. ________________________________________ (name)
________________________________________ (title)
________________________________________ (address)
c. ________________________________________ (name)
_________________________________________ (title)
_________________________________________ (address)
2. Delegate
a. Kevin J. Sheehan , President
b. Robert D. Mancuso, Managing Director
c. Robert Gallagher
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, MA 02117-9130
In the case of notices, with a copy to:
John E. Henry, Esq.
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, MA 02117-9130
Exhibt 9(b)ii under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
APPENDIX A
FUNDS
Deutsche European Mid-Cap Fund
Deutsche German Equity Fund
Deutsche Japanese Equity Fund
Deutsche Global Bond Fund
Deutsche European Bond Fund
Deutsche Top 50 World
Deutsche Top 50 Europe
Deutsche Top 50 Asia
Deutsche Top 50 US
Deutsche US Money Market Fund
Deutsche Institutional US Money Market Fund
<PAGE>
Deutsche Portfolios Deutsche Funds, Inc. DB Funds, Ltd.
Investa Portfolio Deutsche Germany Equity Fund DB Germany Equity Fund Provesta
Portfolio Deutsche European Mid-Cap Fund DB European Mid-Cap Fund European Bond
Portfolio Deutsche European Bond Fund DB European Bond Fund Top 50 Asia
Portfolio Deutsche Top 50 Asia DB Top 50 Asia Top 50 World Portfolio Deutsche
Top 50 World DB Top 50 World Global Bond Portfolio Deutsche Global Bond Fund DB
Global Bond Fund Japanese Equity Portfolio Deutsche Japanese Equity Fund DB
Japanese Equity Fund Top 50 Europe Portfolio Deutsche Top 50 Europe DB Top 50
Europe Top 50 US Portfolio Deutsche Top 50 US DB Top 50 US
FEE SCHEDULE
GLOBAL CUSTODY, FUND ACCOUNTING, SUB ADMINISTRATION,
CALCULATION OF N.A.V. & HUB & SPOKE(R) PROCESSING
A. Fund Accounting, Calculation of N.A.V. & Hub & Spoke(R) Processing
The following basis point fee schedule is based on all assets.
Annual Asset Based Fees Per Hub
First $200 Million in Net Assets 2.0 Basis Points
Next $800 Million in Net Assets 1.5 Basis Points
Above $1 Billion in Net Assets 1.0 Basis Points
Annual Minimum Per Hub Yr. 1. $30,000
Yr. 2. $35,000
Yr. 3. $40,000
There will be a $12,00 annual fee for each Spoke fund. A monthly fee of $500
for each second class of shares per Spoke and $200 for each class thereafter
will apply.
The above fees apply to the initial complex of 9 Offshore Hub funds and 18
Spoke funds (9 US RIC Spokes and 9 Cayman Registered Spokes). Fees for
additional Spokes and/or Hubs to be discussed with your client manager.
<PAGE>
B. Sub Administration
The following basis point fee is based on all assets.
Annual Asset Based Fees per Hub
First $200 Million in Net Assets 2.5 Basis Points
Next $800 Million in Net Assets 2.0 Basis Points
Above $1 Billion in Net Assets 1.0 Basis Points
Annual Minimum Per Hub Yr. 1. $40,000
Yr. 2. $45,000
Yr. 3 $50,000
Offshore Fund Administration Annual Fee per Hub$5,000
Regarding 1940 Act Spokes, the above fee schedule assumes: quarterly
distributions on bond funds; semi-annual distributions on equity funds;
quarterly RIC compliance testing; financial statements are printed in
English.
Regarding offshore Spokes, the above fee schedule assumes: no
distributions, no monitoring for compliance with local regulations and
tax code; annual financial statement preparation; annual Board of
Directors meetings; financial statements are printed in English.
The above fees apply to the initial complex of 9 Offshore Hub funds
and 18 Spoke funds (9 US RIC Spokes and 9 Cayman Registered Spokes).
Fees for additional Spokes and/or Hubs to be discussed with your client
manager.
C. Domestic Custody
Asset Based fee: 1 basis point per annum
Transaction fees:
DTC/Fed Book Entry $10
Physical Securities 35
Options and Futures 18
GNMA Securities 40
Principal Paydown 5
Third Party Foreign Exchange 18
Outgoing Wires 7
Incoming Wires 5
<PAGE>
D. Foreign Subcustodian Fees
Incremental basis point and transaction fees will be charged for all
foreign assets for which we are custodian. The asset based fees and
transaction fees vary by country, based upon the attached global custody
fee schedule.
Annual Minimums Per Hub* Yr. 1. $12,000
Yr. 2. $18,000
Yr. 3. $24,000
*The annual minimum applies to the assets based fee only.
Local duties, scrip fees, reclaims, handling of proxies and other markets
charges are out-of-pocket.
Investors Bank will require the funds to hold all assets at the
subcustodian of our choice.
Fees for additional markets to be discussed with your client manager.
OUT-OF-POCKET & BALANCE CREDITS
A. Out-of-Pocket
These charges consist of: - Pricing & Verification Services - Printing,
Delivery & Postage - Telephone - Third Party Review - System
Development Cost - Micro Rental - Forms & Supplies - Support Equipment
Rental - Legal Expenses
B. Domestic Balance Credit
We allow use of balance credit against fees (excluding out-of-pocket
charges) for fund balances arising out of the custody relationship. The
credit is based on collected balances reduced by balances required to
support the activity charges of the accounts. The monthly earnings
allowance is equal to 75% of the 90-day T-bill rate.
<PAGE>
Miscellaneous
A. Securities Lending, Foreign Exchange and Cash Management
The assumption was made that Investors Bank would perform securities
lending, foreign exchange and cash management for the portfolios.
Securities lending revenue is split with the funds and Investors Bank on a
70/30% basis: 70% going to the funds.
* A letter of intent accompanied by a $15,000 deposit to be credited against
future fees is required to being this implementation. This fee schedule is
valid for 60 days from date of issue and assumes the execution of our
standard contractual agreements for a minimum of three years.
* Custody and Fund Accounting fees are quoted separately for presentation
purposes only. These services are integrated at Investors Bank and,
therefore, are not provided independent from one another.
* The above fees will be charged against the fund's custodial checking account
five business days after the invoice is mailed.
* This fee schedule is confidential information of the parties and shall not be
disclosed to any third party without prior written consent of both parties.
* This fee schedule assumes that the funds will have a licensing agreement with
Signature Financial Group for Hub & Spoke(R).
Accepted and Agreed By:
/s/ Brian Lee Date: 7/30/98
Brian Lee
President
Deutsche Family of Funds
Proposal dated 5/30/97 (revised 7/18/97)
<PAGE>
US Money Market Portfolio
Deutsche US Money Market Fund (Classes A &B)
Deutsche Institutional US Money Market Fund
DB Money Market Fund
Fee Schedule
GLOBAL CUSTODY, FUND ACCOUNTING, SUB ADMINISTRATION,
CALCULATION OF N.A.V. & HUB & SPOKE(R) PROCESSING
An annual asset based fee of four (4) basis points will be charged to each
fund. One and one half (1.5) basis points will be rebated to the Deutsche
Institutional US Money Market Fund.
For additional Spokes and Classes, there will be, in addition to the above
fees, a $12,000 annual fee for each Spoke fund as well as a monthly fee of
$500 for each additional class of shares per Spoke.
If after the first year of operation, the Deutsche US Money Market Fund and
the DB Money Market Fund do not exceed $325 million in assets the fee
schedule for these funds will revert to the standard fee schedule in place
for the other 9 portfolios.
Domestic Custody
Transaction fees:
DTC/Fed Book Entry $10
Physical Securities 35
Options and Futures 18
GNMA Securities 40
<PAGE>
Principal Paydown 5
Third Party Foreign Exchange 18
Outgoing Wires 7
Incoming Wires 5
OUT-OF-POCKET & BALANCE CREDITS
A. Out-of-Pocket
These charges consist of: - Pricing & Verification Services - Printing,
Delivery & Postage - Telephone - Third Party Review - System
Development Cost - Micro Rental - Forms & Supplies - Support Equipment
Rental - Legal Expenses
B. Domestic Balance Credit
We allow use of balance credit against fees (excluding out-of-pocket
charges) for fund balances arising out of the custody relationship. The
credit is based on collected balances reduced by balances required to
support the activity charges of the accounts. The monthly earnings
allowance is equal to 75% of the 90-day T-bill rate.
<PAGE>
Miscellaneous
A. Securities Lending, Foreign Exchange and Cash Management
The assumption was made that Investors Bank would perform securities
lending, foreign exchange and cash management for the portfolios.
Securities lending revenue is split with the funds and Investors Bank on a
70/30% basis: 70% going to the funds.
* A letter of intent accompanied by a $15,000 deposit to be credited against
future fees is required to being this implementation. This fee schedule is
valid for 60 days from date of issue and assumes the execution of our
standard contractual agreements for a minimum of three years.
* Custody and Fund Accounting fees are quoted separately for presentation
purposes only. These services are integrated at Investors Bank and,
therefore, are not provided independent from one another.
* The above fees will be charged against the fund's custodial checking account
five business days after the invoice is mailed.
* This fee schedule is confidential information of the parties and shall not be
disclosed to any third party without prior written consent of both parties.
* This fee schedule assumes that the funds will have a licensing agreement with
Signature Financial Group for Hub & Spoke(R).
Accepted and Agreed By:
/s/ Brian Lee Date: 7/30/98
Brian Lee
President
Deutsche Family of Funds
Proposal dated 5/30/97 (revised 7/18/97)
<PAGE>
Investors Bank & Trust Company
Global Custody Fee Schedule
Country BP Charge Trade Charge
Australia 5.00 $60.00
Austria 7.00 $60.00
Canada 5.00 $30.00
China 20.00 $75.00
Denmark 5.00 $60.00
Euroclear - Eurobonds 5.00 $20.00
Euroclear Non-Eurobond Issues 5.00 $60.00
France 5.00 $60.00
France Debt 5.00 $60.00
Germany 5.00 $30.00
Hong Kong 10.00 $65.00
India **** 50.00 50BP
Indonesia 13.00 $65.00
Italy Debt 5.00 $50.00
Italy Equity 5.00 $50.00
Japan 5.00 $30.00
Korea 13.00 $65.00
Netherlands 5.00 $40.00
Norway 7.00 $90.00
Philippines 13.00 $65.00
Singapore 10.00 $65.00
South Africa 7.00 $40.00
Span Eq & Corp Debt 7.00 $60.00
Spain Gvt Debt 5.00 $60.00
Sweden 5.00 $40.00
Sweden Debt 5.00 $40.00
Switzerland 5.00 $60.00
Taiwan 13.00 $65.00
Thailand 10.00 $65.00
UK 5.00 $50.00
*** Trades billed at 50BP
Out of Pocket Charges are passed through as actuals in all markets
<PAGE>
INVESTORS BANK & TRUST COMPANY
SUMMARY OF CUSTODY FUNCTIONS
Settle purchases and sales of securities upon written instruction.
Provide safekeeping of all securities.
Provide safekeeping of all cash.
Maintain a separate account in the fund's name for securities and cash.
Track and collect al income and receivables.
Reconcile cash and security positions.
Disburse payments for fund expenses.
Determine and report cash availability to portfolio manager.
Provide documentation required under rule 17f-5 (foreign custodians).
Report all voluntary and involuntary corporate action information.
Receive and process corporate actions.
Initiate all settlement inquiries, including tax-reclaims.
Provide reporting including holdings, transactions, income, corporate
actions and cash flow.
Manage relationship with brokers and subcustodians to insure timely and
accurate settlement of domestic and international trades.
<PAGE>
Appendix C
Additional Services
None.
Exhibit 1(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
DEUTSCHE FUNDS, INC.
CERTIFICATE OF CORRECTION
Deutsche Funds, Inc., a Maryland corporation having its principal office
in the State of Maryland in Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation in Maryland that:
FIRST: The title of the document being corrected is:
"DEUTSCHE FAMILY OF FUNDS, INC.
ARTICLES OF AMENDMENT"
SECOND: The only party to the document being corrected is Deutsche Funds,
Inc., formerly named Deutsche Family of Funds, Inc.
THIRD: The document being corrected was filed with the State Department of
Assessments and Taxation of Maryland on September 15, 1997 at 10:15AM.
FOURTH: A. Articles FIRST, Section 4 of the Articles of Amendment as filed
September 15, 1997 reads as follows:
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 Funds"; (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 Common Stock until otherwise
classified in accordance with Article FIFTH, Section 3."
B. As corrected, Articles FIRST, Section 4 of the Articles of
Amendment reads as follows:
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 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."
IN WITNESS WHEREOF, Deutsche Funds, Inc. has caused these presents to be
signed in its name and on its behalf by its duly authorized officers who
acknowledge that this Certificate of Correction is the act of the Corporation,
that to the best of their knowledge, information and belief, all matters and
facts set forth herein relating to the authorization and approval of this
Certificate are true in all material respects, and that this statement is made
under the penalties of perjury.
ATTEST: DEUTSCHE FUNDS, INC.
/s/ Robert R. Gambee /s/ Brian A. Lee
Robert R. Gambee Brian A. Lee
Secretary President
Exhibit 1(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
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."
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
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
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> Deutsche Top 50 World
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 297,584
<INVESTMENTS-AT-VALUE> 258,001
<RECEIVABLES> 45,305
<ASSETS-OTHER> 10,283
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 313,589
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 43,152
<TOTAL-LIABILITIES> 43,152
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 304,983
<SHARES-COMMON-STOCK> 14,642
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> (212)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,249
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (39,583)
<NET-ASSETS> 180,843
<DIVIDEND-INCOME> 1,342
<INTEREST-INCOME> 196
<OTHER-INCOME> 0
<EXPENSES-NET> 1,547
<NET-INVESTMENT-INCOME> (9)
<REALIZED-GAINS-CURRENT> 8,390
<APPREC-INCREASE-CURRENT> (39,583)
<NET-CHANGE-FROM-OPS> (31,202)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,360
<NUMBER-OF-SHARES-REDEEMED> 607
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 169,731
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 115,844
<AVERAGE-NET-ASSETS> 84,872
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.35
<EXPENSE-RATIO> 1.6
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> Deutsche Top 50 World
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 297,584
<INVESTMENTS-AT-VALUE> 258,001
<RECEIVABLES> 45,305
<ASSETS-OTHER> 10,283
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 313,589
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 43,152
<TOTAL-LIABILITIES> 43,152
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 304,983
<SHARES-COMMON-STOCK> 8,089
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (212)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,249
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (39,583)
<NET-ASSETS> 89,594
<DIVIDEND-INCOME> 1,342
<INTEREST-INCOME> 196
<OTHER-INCOME> 0
<EXPENSES-NET> 1,547
<NET-INVESTMENT-INCOME> (9)
<REALIZED-GAINS-CURRENT> 8,390
<APPREC-INCREASE-CURRENT> (39,583)
<NET-CHANGE-FROM-OPS> (31,202)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,089
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 89,594
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 115,844
<AVERAGE-NET-ASSETS> 39,920
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> (1.41)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.08
<EXPENSE-RATIO> 2.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> Deutsche Top 50 Europe
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 4,885,683
<INVESTMENTS-AT-VALUE> 4,318,606
<RECEIVABLES> 316,817
<ASSETS-OTHER> 10,283
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,645,706
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 317,168
<TOTAL-LIABILITIES> 317,168
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,898,939
<SHARES-COMMON-STOCK> 92,705
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> (2,530)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (794)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (567,077)
<NET-ASSETS> 1,208,144
<DIVIDEND-INCOME> 11,806
<INTEREST-INCOME> 4,494
<OTHER-INCOME> 0
<EXPENSES-NET> 17,314
<NET-INVESTMENT-INCOME> (1,014)
<REALIZED-GAINS-CURRENT> 15,157
<APPREC-INCREASE-CURRENT> (567,077)
<NET-CHANGE-FROM-OPS> (552,934)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 102,366
<NUMBER-OF-SHARES-REDEEMED> 10,550
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,197,033
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 141,443
<AVERAGE-NET-ASSETS> 319,011
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.51
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.03
<EXPENSE-RATIO> 1.6
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> Deutsche Top 50 Europe
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 4,885,683
<INVESTMENTS-AT-VALUE> 4,318,606
<RECEIVABLES> 316,817
<ASSETS-OTHER> 10,283
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,645,706
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 317,168
<TOTAL-LIABILITIES> 317,168
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,898,939
<SHARES-COMMON-STOCK> 267,845
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (2,530)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (794)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (567,077)
<NET-ASSETS> 3,120,394
<DIVIDEND-INCOME> 11,806
<INTEREST-INCOME> 4,494
<OTHER-INCOME> 0
<EXPENSES-NET> 17,314
<NET-INVESTMENT-INCOME> (1,014)
<REALIZED-GAINS-CURRENT> 15,157
<APPREC-INCREASE-CURRENT> (567,077)
<NET-CHANGE-FROM-OPS> (552,934)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 278,086
<NUMBER-OF-SHARES-REDEEMED> 10,241
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,120,394
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 141,443
<AVERAGE-NET-ASSETS> 1,270,228
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> (0.84)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.65
<EXPENSE-RATIO> 2.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> Deutsche Top 50 Asia
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 94,274
<INVESTMENTS-AT-VALUE> 79,271
<RECEIVABLES> 103,725
<ASSETS-OTHER> 10,366
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 193,362
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 103,235
<TOTAL-LIABILITIES> 103,235
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 113,738
<SHARES-COMMON-STOCK> 4,960
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> 757
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9,365)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (15,003)
<NET-ASSETS> 40,578
<DIVIDEND-INCOME> 657
<INTEREST-INCOME> 151
<OTHER-INCOME> 0
<EXPENSES-NET> 910
<NET-INVESTMENT-INCOME> (102)
<REALIZED-GAINS-CURRENT> (18,360)
<APPREC-INCREASE-CURRENT> (15,003)
<NET-CHANGE-FROM-OPS> (33,465)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,424
<NUMBER-OF-SHARES-REDEEMED> 353
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 29,467
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 111,031
<AVERAGE-NET-ASSETS> 21,790
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> (4.33)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.18
<EXPENSE-RATIO> 1.6
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> Deutsche Top 50 Asia
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 94,274
<INVESTMENTS-AT-VALUE> 79,271
<RECEIVABLES> 103,725
<ASSETS-OTHER> 10,366
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 193,362
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 103,235
<TOTAL-LIABILITIES> 103,235
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 113,738
<SHARES-COMMON-STOCK> 5,337
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 757
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9,365)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (15,003)
<NET-ASSETS> 49,549
<DIVIDEND-INCOME> 657
<INTEREST-INCOME> 151
<OTHER-INCOME> 0
<EXPENSES-NET> 910
<NET-INVESTMENT-INCOME> (102)
<REALIZED-GAINS-CURRENT> (18,360)
<APPREC-INCREASE-CURRENT> (15,003)
<NET-CHANGE-FROM-OPS> (33,465)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,351
<NUMBER-OF-SHARES-REDEEMED> 9,014
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 49,549
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 111,031
<AVERAGE-NET-ASSETS> 78,650
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> (3.2)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.28
<EXPENSE-RATIO> 2.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> Deutsche Top 50 US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 2,638,047
<INVESTMENTS-AT-VALUE> 2,469,432
<RECEIVABLES> 302,555
<ASSETS-OTHER> 10,283
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,782,270
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 289,415
<TOTAL-LIABILITIES> 289,415
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,686,635
<SHARES-COMMON-STOCK> 162,942
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (25,165)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (168,615)
<NET-ASSETS> 2,056,425
<DIVIDEND-INCOME> 9,717
<INTEREST-INCOME> 4,648
<OTHER-INCOME> 0
<EXPENSES-NET> 22,013
<NET-INVESTMENT-INCOME> (7,648)
<REALIZED-GAINS-CURRENT> (27,910)
<APPREC-INCREASE-CURRENT> (168,615)
<NET-CHANGE-FROM-OPS> (204,173)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 177,430
<NUMBER-OF-SHARES-REDEEMED> 15,377
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,045,314
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 161,556
<AVERAGE-NET-ASSETS> 1,323,756
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 0.15
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.62
<EXPENSE-RATIO> 1.5
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> Deutsche Top 50 US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 2,638,047
<INVESTMENTS-AT-VALUE> 2,469,432
<RECEIVABLES> 302,555
<ASSETS-OTHER> 10,283
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,782,270
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 289,415
<TOTAL-LIABILITIES> 289,415
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,686,635
<SHARES-COMMON-STOCK> 39,817
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (25,165)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (168,615)
<NET-ASSETS> 436,430
<DIVIDEND-INCOME> 9,717
<INTEREST-INCOME> 4,648
<OTHER-INCOME> 0
<EXPENSES-NET> 22,013
<NET-INVESTMENT-INCOME> (7,648)
<REALIZED-GAINS-CURRENT> (27,910)
<APPREC-INCREASE-CURRENT> (168,615)
<NET-CHANGE-FROM-OPS> (204,173)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 47,729
<NUMBER-OF-SHARES-REDEEMED> 7,912
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 436,430
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 161,556
<AVERAGE-NET-ASSETS> 378,902
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> (1.48)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.96
<EXPENSE-RATIO> 2.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> Deutsche European Mid-Cap Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 7,454,942
<INVESTMENTS-AT-VALUE> 6,601,928
<RECEIVABLES> 542,934
<ASSETS-OTHER> 10,387
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,155,249
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 466,502
<TOTAL-LIABILITIES> 466,502
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,419,748
<SHARES-COMMON-STOCK> 168,888
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> (5,105)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 127,118
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (853,014)
<NET-ASSETS> 2,402,032
<DIVIDEND-INCOME> 17,565
<INTEREST-INCOME> 3,151
<OTHER-INCOME> 0
<EXPENSES-NET> 25,140
<NET-INVESTMENT-INCOME> (4,424)
<REALIZED-GAINS-CURRENT> 158,552
<APPREC-INCREASE-CURRENT> (853,014)
<NET-CHANGE-FROM-OPS> (698,886)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 185,654
<NUMBER-OF-SHARES-REDEEMED> 17,655
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,390,921
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 233,490
<AVERAGE-NET-ASSETS> 499,702
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 1.71
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.22
<EXPENSE-RATIO> 1.6
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> Deutsche European Mid-Cap Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 7,454,942
<INVESTMENTS-AT-VALUE> 6,601,928
<RECEIVABLES> 542,934
<ASSETS-OTHER> 10,387
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,155,249
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 466,502
<TOTAL-LIABILITIES> 466,502
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,419,748
<SHARES-COMMON-STOCK> 341,576
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (5,105)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 127,118
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (853,014)
<NET-ASSETS> 4,286,715
<DIVIDEND-INCOME> 17,565
<INTEREST-INCOME> 3,151
<OTHER-INCOME> 0
<EXPENSES-NET> 25,140
<NET-INVESTMENT-INCOME> (4,424)
<REALIZED-GAINS-CURRENT> 158,552
<APPREC-INCREASE-CURRENT> (853,014)
<NET-CHANGE-FROM-OPS> (698,886)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 353,382
<NUMBER-OF-SHARES-REDEEMED> 11,806
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,286,715
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 233,490
<AVERAGE-NET-ASSETS> 1,814,283
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 0.07
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.55
<EXPENSE-RATIO> 2.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> Deutsche German Equity Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 836,428
<INVESTMENTS-AT-VALUE> 724,384
<RECEIVABLES> 56,754
<ASSETS-OTHER> 10,387
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 791,525
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51,475
<TOTAL-LIABILITIES> 51,475
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 842,150
<SHARES-COMMON-STOCK> 31,937
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> 40
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,904
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (112,044)
<NET-ASSETS> 461,764
<DIVIDEND-INCOME> 3,568
<INTEREST-INCOME> 268
<OTHER-INCOME> 0
<EXPENSES-NET> 3,160
<NET-INVESTMENT-INCOME> 676
<REALIZED-GAINS-CURRENT> 10,544
<APPREC-INCREASE-CURRENT> (112,044)
<NET-CHANGE-FROM-OPS> (100,824)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 39,304
<NUMBER-OF-SHARES-REDEEMED> 8,256
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 450,653
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 124,270
<AVERAGE-NET-ASSETS> 121,982
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 1.94
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.46
<EXPENSE-RATIO> 1.6
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> Deutsche German Equity Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 836,428
<INVESTMENTS-AT-VALUE> 724,384
<RECEIVABLES> 56,754
<ASSETS-OTHER> 10,387
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 791,525
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51,475
<TOTAL-LIABILITIES> 51,475
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 842,150
<SHARES-COMMON-STOCK> 22,029
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 40
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,904
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (112,044)
<NET-ASSETS> 278,286
<DIVIDEND-INCOME> 3,568
<INTEREST-INCOME> 268
<OTHER-INCOME> 0
<EXPENSES-NET> 3,160
<NET-INVESTMENT-INCOME> 676
<REALIZED-GAINS-CURRENT> 10,544
<APPREC-INCREASE-CURRENT> (112,044)
<NET-CHANGE-FROM-OPS> (100,824)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,029
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 278,286
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 124,270
<AVERAGE-NET-ASSETS> 133,017
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.63
<EXPENSE-RATIO> 2.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> Deutsche Japanese Equity Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 291,697
<INVESTMENTS-AT-VALUE> 283,848
<RECEIVABLES> 45,025
<ASSETS-OTHER> 10,394
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 339,267
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 42,323
<TOTAL-LIABILITIES> 42,323
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 307,718
<SHARES-COMMON-STOCK> 1,451
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> (27)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,898)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (7,849)
<NET-ASSETS> 14,286
<DIVIDEND-INCOME> 21
<INTEREST-INCOME> 194
<OTHER-INCOME> 0
<EXPENSES-NET> 495
<NET-INVESTMENT-INCOME> (280)
<REALIZED-GAINS-CURRENT> (3,536)
<APPREC-INCREASE-CURRENT> (7,849)
<NET-CHANGE-FROM-OPS> (11,665)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 667
<NUMBER-OF-SHARES-REDEEMED> 105
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,175
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 110,717
<AVERAGE-NET-ASSETS> 11,851
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> (2.58)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> 1.6
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> Deutsche Japanese Equity Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 291,697
<INVESTMENTS-AT-VALUE> 283,848
<RECEIVABLES> 45,025
<ASSETS-OTHER> 10,394
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 339,267
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 42,323
<TOTAL-LIABILITIES> 42,323
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 307,718
<SHARES-COMMON-STOCK> 23,332
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (27)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,898)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (7,849)
<NET-ASSETS> 282,658
<DIVIDEND-INCOME> 21
<INTEREST-INCOME> 194
<OTHER-INCOME> 0
<EXPENSES-NET> 495
<NET-INVESTMENT-INCOME> (280)
<REALIZED-GAINS-CURRENT> (3,536)
<APPREC-INCREASE-CURRENT> (7,849)
<NET-CHANGE-FROM-OPS> (11,665)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23,343
<NUMBER-OF-SHARES-REDEEMED> 11
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 282,658
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 110,717
<AVERAGE-NET-ASSETS> 233,783
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> (0.38)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.11
<EXPENSE-RATIO> 2.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> Deutsche Global Bond Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 71,667
<INVESTMENTS-AT-VALUE> 72,133
<RECEIVABLES> 43,678
<ASSETS-OTHER> 10,373
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 126,184
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41,953
<TOTAL-LIABILITIES> 41,953
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 83,743
<SHARES-COMMON-STOCK> 6,587
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> (36)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 58
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 466
<NET-ASSETS> 84,231
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,239
<OTHER-INCOME> 0
<EXPENSES-NET> 593
<NET-INVESTMENT-INCOME> 1,646
<REALIZED-GAINS-CURRENT> (499)
<APPREC-INCREASE-CURRENT> 466
<NET-CHANGE-FROM-OPS> 1,613
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,204)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,535
<NUMBER-OF-SHARES-REDEEMED> 7,932
<SHARES-REINVESTED> 95
<NET-CHANGE-IN-ASSETS> 73,120
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 110,887
<AVERAGE-NET-ASSETS> 51,702
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 0.22
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.79
<EXPENSE-RATIO> 1.3
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> Deutsche European Bond Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 94,290
<INVESTMENTS-AT-VALUE> 96,296
<RECEIVABLES> 49,299
<ASSETS-OTHER> 10,387
<OTHER-ITEMS-ASSETS> 239
<TOTAL-ASSETS> 156,221
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 42,352
<TOTAL-LIABILITIES> 42,352
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 111,640
<SHARES-COMMON-STOCK> 2,161
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> 175
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 48
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,006
<NET-ASSETS> 28,425
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,001
<OTHER-INCOME> 0
<EXPENSES-NET> 391
<NET-INVESTMENT-INCOME> 610
<REALIZED-GAINS-CURRENT> 636
<APPREC-INCREASE-CURRENT> 2,006
<NET-CHANGE-FROM-OPS> 3,252
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (203)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,985
<NUMBER-OF-SHARES-REDEEMED> 729
<SHARES-REINVESTED> 16
<NET-CHANGE-IN-ASSETS> 17,314
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 109,033
<AVERAGE-NET-ASSETS> 15,333
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 0.58
<PER-SHARE-DIVIDEND> (0.12)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.15
<EXPENSE-RATIO> 1.3
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> Deutsche European Bond Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 94,290
<INVESTMENTS-AT-VALUE> 96,296
<RECEIVABLES> 49,299
<ASSETS-OTHER> 10,387
<OTHER-ITEMS-ASSETS> 239
<TOTAL-ASSETS> 156,221
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 42,352
<TOTAL-LIABILITIES> 42,352
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 111,640
<SHARES-COMMON-STOCK> 6,663
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 175
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 48
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,006
<NET-ASSETS> 85,444
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,001
<OTHER-INCOME> 0
<EXPENSES-NET> 391
<NET-INVESTMENT-INCOME> 610
<REALIZED-GAINS-CURRENT> 636
<APPREC-INCREASE-CURRENT> 2,006
<NET-CHANGE-FROM-OPS> 3,252
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (400)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,631
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 32
<NET-CHANGE-IN-ASSETS> 85,444
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 109,033
<AVERAGE-NET-ASSETS> 56,825
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 0.35
<PER-SHARE-DIVIDEND> (0.11)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.82
<EXPENSE-RATIO> 2.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> Deutsche U.S. Money Market
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 730,727
<INVESTMENTS-AT-VALUE> 730,727
<RECEIVABLES> 31,792
<ASSETS-OTHER> 2,538
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 765,057
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37,761
<TOTAL-LIABILITIES> 37,761
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 727,296
<SHARES-COMMON-STOCK> 727,296
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 727,296
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,949
<OTHER-INCOME> 0
<EXPENSES-NET> 1,471
<NET-INVESTMENT-INCOME> 13,478
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 13,478
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,478)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,773,253
<NUMBER-OF-SHARES-REDEEMED> 2,056,466
<SHARES-REINVESTED> 10,409
<NET-CHANGE-IN-ASSETS> 727,196
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 117,233
<AVERAGE-NET-ASSETS> 610,533
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> Deutsche U.S. Institutional Money
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 100
<ASSETS-OTHER> 6,294
<OTHER-ITEMS-ASSETS> 6,500
<TOTAL-ASSETS> 12,894
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,294
<TOTAL-LIABILITIES> 6,294
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,600
<SHARES-COMMON-STOCK> 6,600
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,600
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,500
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,500
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
