DEUTSCHE TOP 50 EUROPE
DEUTSCHE EUROPEAN MID-CAP FUND
DEUTSCHE GERMAN EQUITY FUND
DEUTSCHE EUROPEAN BOND FUND
Class A Shares and Class B Shares
Federated Investors Tower
Pittsburgh, PA 15222-3779
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 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" or "Deutsche Funds"). The investment objective of Top 50
Europe, European Mid-Cap Fund and 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 in a Statement of Additional Information
dated February 23, 1998 (as revised). This information is incorporated herein by
reference and is available without charge upon written request from the Funds'
transfer agent, Federated Shareholder Services Company, or by calling toll-free
888-4-DEUTSCHE.
INVESTMENTS IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, DEUTSCHE BANK AG OR ANY OTHER BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN CLASS A SHARES
OR CLASS B SHARES IS SUBJECT TO RISKS THAT MAY CAUSE THE VALUE OF THE INVESTMENT
TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE HIGHER OR
LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated February 23, 1998 (as revised)
TABLE OF CONTENTS
Expense Summary 2
The Funds 4
Investment Objective, Policies and Restrictions 4
Equity Funds 4
European Bond Fund 5
All Funds 5
Risk Factors 8
Equity Investments 8
Fixed Income Securities 8
Foreign Investments 8
Emerging Markets (Top 50 Europe Portfolio and
Provesta Portfolio Only) 8
Futures, Options, and Warrants 8
Local Securities Markets 9
Management of the Corporation and the Portfolio Trust 9
Manager 9
Adviser 10
Historical Performance of Corresponding DWS Funds 10
Portfolio Management 11
Investing in the Funds 14
Class A Shares 14
Class B Shares 14
Purchase of Shares 14
Investing in Class A Shares 14
Special Purchase Features 17
Systematic Investment Program 17
Retirement Plans 17
Exchange Privileges 17
Class A Shares 17
Class B Shares 17
Requirements for Exchange 17
Tax Consequences 17
Making an Exchange 17
Telephone Instructions 17
Redemption of Shares 18
Redeeming Shares Through a Financial Intermediary 18
Redeeming Shares by Telephone 18
Redeeming Shares by Mail 18
Special Redemption Features 18
Systematic Withdrawal Program 18
Contingent Deferred Sales Charge 18
Class A Shares 18
Class B Shares 19
Class A Shares and Class B Shares 19
Elimination of Contingent Deferred Sales Charge 19
Account and Share Information 19
Certificates and Confirmations 19
Accounts with Low Balances 19
Dividends and Distributions 19
Net Asset Value 20
Organization 20
Taxes 21
Additional Information 22
Appendix A 22
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 the
allocable operating expenses of its corresponding Portfolio. The Directors of
the Corporation believe that the aggregate per share expenses of each Fund and
the allocable operating expenses of its corresponding Portfolio will be
approximately equal to and may be less than the expenses that the Fund would
incur if it retained the services of an investment adviser and invested its
assets directly in portfolio securities. Actual expenses may vary. A
hypothetical example based on the summary is also shown. For more information
concerning the expenses of each Fund and its corresponding Portfolio, see
"Management of the Corporation and the Portfolio Trust."
Shareholder Transaction Expenses
European
Equity Funds Bond Fund
Class A Class B Class A Class B
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) 5.50% None 4.50% None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price) None None None None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)
0.00%(1) 5.00%(2) 0.00%(1) 5.00%(2)
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.
Expense Table
Annual Operating Expenses (After Expense Reimbursement)
(As a percentage of projected average net assets)
Top 50 Equity Funds European
Europe (except Top 50 Europe) Bond Fund
Class A Class B Class A Class B Class A Class B
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%
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:
Top 50 Equity Funds European
Europe (except Top 50 Europe) Bond Fund
Class A Class B Class A Class B Class A Class B
1 Year $ 70 $ 73 $ 70 $ 73 $58 $70
3 Years $103 $103 $103 $103 $84 $94
You would pay the following expenses on the same investment assuming
no redemption:
1 Year $ 70 $ 24 $ 70 $ 25 $58 $24
3 Years $103 $ 73 $103 $ 73 $84 $73
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in a
Fund would bear. Wire transferred redemptions of less than $5,000 may be subject
to additional fees. The fees and expenses included in "Other Expenses" are
estimated for each Fund's first fiscal year and include (i) the fees paid to the
Administrator, Administrative Agent, Operations Agent, Transfer Agent, Fund
Accounting Agent, and Custodian (as each are defined herein), (ii) amortization
of organizational expenses, and (iii) other usual and customary expenses of each
Fund and each Portfolio. DFM has agreed that it will reimburse each Fund through
at least August 31, 1998 to the extent necessary to maintain such Fund's ratio
of total operating expenses to average annual net assets at the level indicated
above. Assuming no reimbursement of expenses, estimated "Other Expenses" for the
first fiscal year of Top 50 Europe, European Mid-Cap Fund, German Equity Fund
and European Bond Fund would be 0.96%, 0.98%, 0.96 and 0.95% respectively, and
"Total Operating Expenses" would be 2.21%, 2.08%, 2.06% and 1.95% respectively,
of the Fund's average daily net assets attributed to Class A Shares, and 2.96%,
2.83%, 2.81% and 2.70% respectively, of the Fund's average daily net assets
attributed to Class B Shares. For a more detailed description of contractual fee
arrangements, including expense reimbursements, see "Management of the
Corporation and the Portfolio Trust." In connection with the above example,
investors should note that $1,000 is less than the minimum investment
requirement for each Class of each Fund. See "Purchase of Shares." 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.
THE FUNDS
Each Fund is a non-diversified, open-end management investment company and is a
series of shares of common stock of the Deutsche Funds, Inc., a Maryland
corporation incorporated on May 22, 1997 (see "Organization").
Each Fund seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Portfolio that has the same investment
objective as the Fund. The Top 50 Europe invests all of its investable assets in
the Top 50 Europe Portfolio (US Dollar); the European Mid-Cap Fund invests all
of its investable assets in the Provesta Portfolio (US Dollar); the German
Equity Fund invests all of its investable assets in the Investa Portfolio (US
Dollar); and the European Bond Fund invests all of its investable assets in the
European Bond Portfolio (US Dollar). The Top 50 Europe Portfolio (US Dollar),
Provesta Portfolio (US Dollar) and Investa Portfolio (US Dollar) 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, as amended (the "1940
Act")(the "Independent Directors"), are the same as the Trustees who are not
"interested persons" of the Portfolio Trust as defined in the 1940 Act (the
"Independent Trustees"). A majority of the Corporation's Directors and the
Portfolio Trust's Trustees are not affiliated with the Manager, the Adviser or
the Distributor. For further information about the Directors of the Corporation
and the Trustees of the Portfolio Trust, see "Management of the Corporation and
the Portfolio Trust" herein and in the Statement of Additional Information.
Investment OBJECTIVE, POLICIES
AND RESTRICTIONS
Each Fund seeks to achieve its investment objective by investing all its
investable assets in a corresponding Portfolio, an open end management company
that has the same investment objective and investment policies as the Fund.
Since the investment characteristics and experience of each Fund will correspond
directly with those of its corresponding Portfolio, the discussion in this
Prospectus focuses on the investments and investment policies of the Portfolios.
No Fund represents a complete investment program, nor is each Fund suitable for
all investors.
Equity 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 Top 50 Europe Portfolio (US Dollar) pursues its (and the Top 50 Europe's)
investment objective by investing at least 65% of its total assets in the equity
securities of issuers located in European countries, including those which are
member states of the European Union, those which are party to the Convention on
the European Economic Area ("CEEA"), Switzerland, Slovakia, Czech Republic, and
Hungary.
The 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 (US Dollar)("Provesta Portfolio") pursues its (and the
European Mid-Cap Fund's) investment objective by investing primarily in the
equity securities of issuers located in European countries, including those
which are member states of the European Union, those which are party to the
CEEA, Switzerland, Slovakia, Czech Republic, and Hungary.
The Provesta Portfolio seeks investment in companies which the Adviser believes
may grow at a higher rate than the average of other European companies. These
anticipated higher growth rates may cause the performance of the Fund to be more
volatile than that of other equity funds, and therefore, investors should
consider an investment in the European Mid-Cap Fund to be subject to more risk
and greater volatility. See "Risk Factors."
Under normal circumstances, at least 65% of the Portfolio's total assets are
invested in European equity securities issued by companies with market
capitalizations of between $115 million and $19 billion.
The Investa Portfolio (US Dollar)("Investa Portfolio") pursues its (and the
German Equity Fund's) investment objective by investing primarily in the equity
securities of German companies.
Under normal circumstances, at least 65% of the Portfolio's total assets are
invested in equity securities issued by German issuers. In pursuing the
Portfolio's objective, the Adviser will emphasize German companies that have
some or all of the following attributes: high market capitalization, large
number of publicly held shares, high trading volume, high liquidity, financial
stability, or a widely known name or product/service.
Fixed Income Securities
Each Equity Portfolio is permitted to invest in fixed income securities,
although it intends to remain invested in equity securities to the extent
practical in light of its objective. The Provesta Portfolio's and Investa
Portfolio's investment in fixed income securities (excluding bank deposits and
money market instruments) will not exceed 20% of 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 (US Dollar)("European Bond Portfolio") pursues its
(and the European Bond Fund's) investment objective by investing primarily in
the fixed income securities of European issuers.
Under normal circumstances, at least 65% of the Portfolio's total assets are
invested in bonds 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:
n the Federal Republic of Germany, a special purpose fund of the Federal
Republic of Germany, a state of the Federal Republic of Germany, the European
Union or a member state of the Organisation for Economic Cooperation and
Development (an "OECD Member"),
n 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),
n 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,
n other debtors, if guaranteed as to the payment of interest and repayment
of principal by one of the aforementioned bodies, or
n 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 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 ratings 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. See
Appendix B to the Statement of Additional Information for a description of these
ratings.
Bank Deposits and Money Market Instruments
Each Portfolio may temporarily invest in bank deposits and money market
instruments maturing in less than 12 months. These instruments include credit
balances and bank certificates of deposit, discounted treasury notes and bills
issued by the Federal Republic of Germany ("FRG"), the states of the FRG, the
European Union, OECD Members or quasi-governmental entities of any of the
foregoing.
Under normal circumstances each Portfolio will purchase bank deposits and money
market instruments to invest temporary cash balances or to maintain liquidity to
meet redemptions. However, each Portfolio may temporarily invest in bank
deposits and money market instruments, up to 49% of its net assets, as a measure
taken in the Adviser's judgment during, or in anticipation of, adverse market
conditions. Certificates of deposit from the same credit institution may not
account for more than 10% of a Portfolio's total assets. See "Investment
Objectives and Policies" in the Statement of Additional Information.
Options Transactions on Securities
Options transactions may be carried out for each Portfolio if the securities
options are admitted to official listing on a recognized futures or securities
exchange and the securities underlying the options are within the applicable
investment objective and policies of the Portfolio. Each of these instruments is
a derivative instrument as its value derives from the underlying asset. Each
Portfolio may use options for hedging and risk management purposes and may
purchase call options and sell put options for speculation. See "Risk Factors."
By purchasing a put option, a Portfolio obtains the right (but not the
obligation) to sell the instrument underlying the option at a fixed strike
price. In return for this right, the Portfolio pays the current market price for
the option (known as the option premium). The purchaser of a call option obtains
the right to purchase, rather than sell, the instrument underlying the option at
the option's strike price.
Put options on securities may be purchased only if the securities underlying the
option transaction are held by a Portfolio at the time of the purchase of the
put option.
When a Portfolio writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the premium,
the Portfolio assumes the obligation to pay the strike price for the instrument
underlying the option if the other party to the option chooses to exercise it.
Writing a call option obligates a Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option.
Call options on securities may be sold only if the securities underlying the
option transaction are held by a Portfolio at the time of the sale. These
securities may not be sold during the maturity of the call option and may not be
the subject of a securities loan.
There is no limitation on the value of the options that may be purchased or
written by a Portfolio. However, the strike prices of the securities options,
together with the strike prices of the securities that underlie other securities
options already purchased or granted for the account of each Portfolio, may not
exceed 20% of net assets of the Portfolio. See "Risk Factors." With respect to
the Provesta Portfolio and the Investa Portfolio, the strike prices of options
on fixed income securities held by each Portfolio may not exceed 4% of the net
assets of the Portfolio (i.e., 20% of the 20% investment limitation on fixed
income securities). See "Equity Funds--Fixed Income Securities" above. Options
on securities may only be purchased or granted to a third party to the extent
that the strike prices of such options, together with the strike prices of
options on securities of the same issuer already purchased by or granted for the
account of a Portfolio, do not exceed 10% of the net assets of the Portfolio.
Options on securities may only be written (sold) to the extent that the strike
prices of such options, together with the strike prices of options on securities
of the same issuer already written for the account of a Portfolio, do not exceed
2% of the net assets of the Portfolio. When an option transaction is offset by a
back-to-back transaction (e.g., where a Portfolio writes a put option on a
security and purchases a put option on the same security having the same
expiration date), these two transactions will not be counted for purposes of the
limits set forth in this paragraph.
Futures Contracts, Options on Futures and Securities Indices and Warrants
Each Portfolio may purchase and sell stock index futures contracts and interest
rate futures contracts and may purchase options on interest rate futures
contracts, options on securities indices and warrants on futures contracts and
stock indices. A Portfolio will engage in transactions in such instruments only
if they are admitted to official listing on a recognized futures or securities
exchange and meet certain other requirements stated below. A Portfolio may use
these techniques for hedging or risk management purposes or, subject to certain
limitations, for the purposes of obtaining desired exposure to certain
securities or markets.
For the purpose of hedging a Portfolio's assets, the Portfolio may sell (but not
purchase) stock index or interest rate futures contracts and may purchase put or
call options on futures contracts, options on securities indices and any of the
warrants described above. Any such transaction will be considered a hedging
transaction, and not subject to the limitations on non-hedging transactions
stated below, to the extent that (1) in the case of stock index futures, options
on securities indices and warrants thereon, the contract value does not exceed
the market value of the shares held by the Portfolio for which the hedge is
intended and such shares are admitted to official listing on a stock exchange in
the country in which the relevant futures or securities exchange is based or (2)
in the case of interest rate futures and options on securities indices and
warrants thereon, the contract value does not exceed the interest rate exposure
associated with the assets held in the applicable currency by the Portfolio. In
carrying out a particular hedging strategy, a Portfolio may sell futures
contracts and purchase options or warrants based on securities, financial
instruments or indices that have issuers, maturities or other characteristics
that do not precisely match those of the Portfolio's assets for which such hedge
is intended, thereby creating a risk that the futures, options or warrants
position will not mirror the performance of such assets. A Portfolio may also
enter into transactions in futures contracts, options on futures, options on
indices and warrants for non-hedging purposes, as described below.
Each Portfolio may purchase or sell stock index or interest rate futures
contracts, put or call options on futures, options on securities indices and
warrants other than for hedging purposes. Transactions for non-hedging purposes
may be entered into only to the extent that (1) the underlying contract values,
together with the contract values of any instrument then held by the Portfolio
for non-hedging purposes, do not exceed in the aggregate 20% of the net assets
of the Portfolio and (2) such instruments relate to categories of assets which
the Portfolio is permitted to hold. In addition, with respect to the Provesta
Portfolio and the Investa Portfolio, the contract values of all interest rate
futures contracts and options and warrants on interest rate futures contracts
held for non-hedging purposes may not exceed 4% of the net assets of the
Portfolio (i.e., 20% of the 20% limitation on fixed income securities). See
"Equity Funds--Fixed Income Securities" above.
Currency Forward Contracts, Option Rights and Warrants on Currencies and
Currency Futures Contracts
Each Portfolio may enter into foreign currency transactions to hedge currency
risks associated with the assets of each Portfolio denominated or principally
traded in foreign currencies. The Provesta Portfolio and the Investa Portfolio,
however, do not presently intend to engage in such hedging activity but reserve
the ability to do so under circumstances in which the Adviser believes that one
or more currencies in which such Portfolio's assets are denominated may suffer a
substantial decline against the U.S. dollar. Each Portfolio other than the
Provesta Portfolio and the Investa Portfolio may also enter into foreign
currency transactions to hedge against currencies other than the U.S. dollar.
A Portfolio may purchase or sell foreign currency contracts for forward
delivery, purchase option rights for the purchase or sale of currencies or
currency futures contracts or warrants which entitle the holder to the right to
purchase or sell currencies or currency futures contracts or to receive payment
of a difference, which is measured by the performance of currencies or currency
futures contracts, provided that these option rights and warrants are admitted
to official listing on an exchange.
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 331/3% 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.
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 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 vulnerable to
the aforementioned currency risks. See "Foreign Currency Exchange Transactions"
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.
Futures, Options and Warrants
Each Portfolio's successful use of futures, options and warrants depends on the
ability of the Adviser to predict the direction of the market or, in the case of
hedging transactions, the correlation between market movements and movements in
the value of the Portfolio's assets, and is subject to various additional risks.
The investment techniques and skills required to use futures, options and
warrants successfully are different from those required to select equity
securities for investment. The correlation between movements in the price of the
futures contract, option or warrant and the price of the securities or financial
instruments being hedged is imperfect and the risk from imperfect correlation
increases, with respect to stock index futures, options and warrants, as the
composition of a Portfolio's portfolio diverges from the composition of the
index underlying such stock index futures, options or warrants. If a Portfolio
has hedged portfolio securities by purchasing put options or selling futures
contracts, the Portfolio could suffer a loss which is only partially offset or
not offset at all by an increase in the value of the Portfolio's securities. As
noted, a Portfolio may also enter into transactions in future contracts, options
and warrants for other than hedging purposes (subject to applicable law),
including speculative transactions, which involve greater risk. In particular,
in entering into such transactions, a Portfolio may experience losses which are
not offset by gains on other portfolio positions, thereby reducing its gross
income. In addition, the markets for such instruments may be volatile from time
to time, which could increase the risk incurred by a Portfolio in entering into
such transactions. The ability of a Portfolio to close out a futures, options or
warrants position depends on a liquid secondary market.
The use of futures contracts potentially exposes the Portfolios to the effects
of "leveraging," which occurs when futures are used so a Portfolio's exposure to
the market is greater than it would have been if the Portfolio had invested
directly in the underlying instruments. Leveraging increases a Portfolio's
potential for both gain and loss. As noted above, the Portfolios intend to
adhere to certain policies relating to the use of futures contracts, which
should have the effect of limiting the amount of leverage by the Portfolios. See
"Futures and Option Contracts" in the Statement of Additional Information.
Local Securities Markets
The German Securities Markets
Equity securities trade on the country's eight regional stock exchanges
of which Frankfurt accounted for approximately 79.5% of the total volume in
1996.
Share prices of companies traded on German stock exchanges declined in 1991 and
1992 as the German economy entered a recessionary period following unification
of eastern and western Germany in 1990. The DM total return of the CDAX German
Composite Index of stocks was -6.39% in 1992, 44.56% in 1993, -5.83% in 1994,
4.75% in 1995, 22.14% in 1996, and 29.96% for the first half of 1997.
Trading volume tends to concentrate on the relatively few companies having both
large market capitalization and a broad distribution of their stock with few or
no large holders. The five companies having the largest annual trading volume of
their stock in 1996 represented 46.8% of total trading volume on the German
stock exchanges: Daimler-Benz AG with DM 261.9 billion, Siemens AG with DM 256.1
billion, Deutsche Bank AG with DM 216.8 billion, Bayer AG with DM 186.4 billion,
and Volkswagen AG with DM 162.2 billion.
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 $570 billion and 75,000 employees as of
year-end 1996, Deutsche Bank AG is Europe's largest universal bank. It is
engaged in a wide range of financial services, including retail and commercial
banking, investment banking and insurance. Deutsche Bank AG's creditworthiness
ranks it among the most highly rated financial institutions in the world. For
example, Deutsche Bank AG has been rated AAA by Standard & Poor's, New York.
Deutsche Bank AG and its affiliates may have commercial lending relationships
with companies whose securities may be held by a Portfolio.
DFH subsidiaries include German-based DWS Deutsche Gesellschaft fuer
Wertpapiersparen mbH ("DWS") and others based in Luxembourg, Austria,
Switzerland, Singapore, France and Italy. Together, DFH subsidiaries serve as
manager and/or investment adviser to more than 150 mutual funds outside the
United States, having aggregate assets under management of more than the
equivalent of $68 billion as of August 1997. DFH and its subsidiaries employ
approximately 500 professionals and is the largest mutual fund operator in
Europe based on assets under management.
The primary subsidiary of DFH is DWS. Founded in 1956, it is the largest mutual
fund company in Germany, holding a 25% share of the German mutual fund market
based on assets under management as of August 1997. DFH and its subsidiaries are
known in the financial market as "DWS Group, 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. 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 the Top
50 Europe Portfolio, DFM receives a fee from such Portfolio, which is computed
daily and paid monthly, equal to 1.00% of the average daily net assets of the
Top 50 Europe 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 the Provesta Portfolio and the Investa Portfolio, DFM receives a fee
from each such Portfolio, which is computed daily and paid monthly, equal to
0.85% of the average daily net assets of the Provesta Portfolio and the Investa
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 the
European Bond Portfolio, DFM receives a fee from such Portfolio, which is
computed daily and paid monthly, equal to 0.75% of the average daily net assets
of the European 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 0.75% 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 its corresponding Portfolio 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 will manage the investment
operations of each Portfolio with a portfolio manager and a staff of investment
professionals that is composed of the same persons as those that manage and have
full discretionary authority over the selection of investments for the
corresponding DWS Fund.
The European Mid-Cap Fund and its corresponding Provesta Portfolio and the
German Equity Fund and its corresponding Investa Portfolio commenced operations
in 1997 and have no operating or performance history.
Information about the performance of the two corresponding DWS Funds--Provesta
(corresponding to European Mid-Cap Fund) and Investa (corresponding to German
Equity Fund) is set forth below. Although each Equity Fund and its corresponding
Portfolio have the same investment objectives, policies, and restrictions as
their corresponding DWS Fund, and each Portfolio has the same staff of
investment professionals and the same portfolio manager as its corresponding DWS
Fund, the DWS Funds are separate funds and you should not assume that a Fund
offered by this Prospectus will have the same future performance as its
corresponding DWS Fund. The DWS Funds operate under the German regulatory and
tax framework and the Portfolios operate under the U.S. regulatory and tax
framework (diversification requirements, specific tax restrictions and
investment limitations). Since the historical performance of the DWS Funds would
not have been materially affected by the differences in the regulation of
investment companies under U.S. federal securities and tax laws and regulations,
the differences in regulation are not expected to result in any material
differences in performance (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 average annualized total return for the Provesta
and Investa Funds for the one-, three-, five- and ten-year periods ended June
30, 1997 and of securities indices believed by the Adviser to be suitable for
performance comparisons with the Provesta Portfolio, Investa Portfolio and the
DWS Funds. These figures, which are unaudited, are based on the actual gross
investment performance of the DWS Funds with the adjustments indicated below.
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 European Mid-Cap Fund)
Average Annual Return for the Periods Ended June 30, 1997
Historical Performance
in U.S. Dollars CDAX Index
Without With (in U.S. Dollars,
Sales Load(2) Sales Load(3) Annualized)(4)
One Year 27.82% 20.79% 23.91%
Three Years 17.78% 15.58% 15.93%
Five Years 15.11% 13.81% 11.30%
Ten Years 13.50% 12.86% 10.51%
(1) Net Assets as of 6/30/97 were DM 1,730 million ($992 million). Provesta
commenced investment operations in November 1985.
(2) The sales load may be reduced or eliminated on the 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 Borse AG.
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 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 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 4.8 billion ($2.8
billion) as of March 31, 1997. Ms. Weisenhorn also serves as the senior
portfolio manager for the Investa Portfolio and the Provesta Portfolio. Ms.
Weisenhorn also serves as portfolio manager for Investa and Provesta, the
Portfolios' corresponding DWS Funds. She has held this position since 1991. Ms.
Weisenhorn has 12 years of experience as an investment manager and joined the
DWS Group in 1985. She is Senior Investment Officer, head of the German equity
team, supervising funds holding assets under management of DM 8 billion ($4.7
billion) as of March 31, 1997. 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 19.5
billion
($11.5 billion) as of March 31, 1997.
Administrator
Under a master agreement for administration services with the Corporation,
Federated Services Company serves as Administrator to the Funds. In connection
with its responsibilities as Administrator, Federated Services Company, among
other things (i) prepares, files and maintains the Funds' governing documents,
registration statements and regulatory documents; (ii) prepares and coordinates
the printing of publicly disseminated documents; (iii) monitors declaration and
payment of dividends and distributions; (iv) projects and reviews the Funds'
expenses; (v) performs internal audit examinations; (vi) prepares and
distributes materials to the Directors of the Corporation, (vii) coordinates the
activities of all service providers; (viii) monitors and supervises collection
of tax reclaims; and (ix) prepares shareholder meeting materials.
As Administrator, Federated Services Company receives a fee from each Fund,
which is computed daily and may be paid monthly, at the annual rate of 0.065% of
the average daily net assets of each Fund up to $200 million and 0.0525% of the
average daily net assets of each Fund greater than $200 million for the Fund's
then-current fiscal year. The Administrator will receive a minimum fee of
$75,000 per Fund annually, 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 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, the Administrator, and Transfer Agent combined.
Administrative Agent
Under an administration agreement with the Portfolio Trust, IBT (Cayman)
provides certain services to the Portfolios, including (i) filing and
maintaining the governing documents, registration statements and other
regulatory filings; (ii) maintaining a telephone line; (iii) approving annual
expense budgets; (iv) authorizing expenses; (v) distributing materials to the
Trustees of the Portfolio Trust; (vi) authorizing dividend distributions; (vii)
maintaining books and records; (viii) filing tax returns; and (ix) maintaining
the investor register.
As Administrative Agent of the Portfolios, IBT (Cayman) receives a fee from each
Portfolio, which may be paid monthly, at the annual rate of $5,000.
Distributor
Edgewood serves as principal distributor for shares of each Fund. Edgewood is
located at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. It is
a New York corporation organized on October 26, 1993, and is the principal
distributor for a number of investment companies.
Edgewood is a subsidiary of Federated Investors and an affiliate of Federated
Services Company.
Securities laws may require certain Financial Intermediaries (as defined below)
such as depository institutions to register as dealers. The Distributor may pay
dealers an amount up to 5.0% of the net asset value of Class B Shares purchased
by their clients or customers as an advance payment. These payments will be made
directly by the Distributor from its assets, and will not be made from the
assets of a Fund. Dealers may voluntarily waive receipt of all or any portion of
these advance payments. The Distributor may pay all or a portion of the
distribution fee discussed below to Financial Intermediaries that waive all or
any portion of the advance payments.
Under a distribution and services plan adopted in accordance with Rule 12b-1 of
the 1940 Act, Class B Shares are subject to a distribution plan (the
"Distribution Plan") and Class A Shares and Class B Shares are subject to a
service plan (the "Service Plan").
Under the Distribution Plan, Class B Shares of each Fund will pay a fee to the
Distributor in an amount computed at an annual rate of 0.75% of the average
daily net assets of the Fund represented by Class B Shares to finance any
activity which is principally intended to result in the sale of Class B Shares
of the Fund subject to the Distribution Plan. Because distribution fees to be
paid by a Fund to the Distributor may not exceed an annual rate of 0.75% of
Class B Shares' average daily net assets, it will take the Distributor a number
of years to recoup the expenses, including payments to other dealers, it has
incurred for its sales services and distribution-related support services
pursuant to the Distribution Plan.
The Distribution Plan is a compensation-type plan. As such, a Fund makes no
payments to the Distributor except as described above. Therefore, a Fund does
not pay for unreimbursed expenses of the Distributor, including amounts expended
by the Distributor in excess of amounts received by it from a Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the Distributor's overhead expenses. However, the Distributor may be able to
recover such amounts or may earn a profit from payments made by shares under the
Distribution Plan.
Under the Service Plan, each Fund pays to DFM for the provision of certain
services to the holders of Class A Shares and Class B Shares a fee computed at
an annual rate of 0.25% of the average daily net assets of each such Class of
shares. The 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 ("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 and Class B Shares, the Distributor
may offer to pay a fee from its own assets to Financial Intermediaries as
financial assistance for providing substantial sales services, distribution
related support services, or shareholder services. The support may include
sponsoring sales, educational and training seminars for their employees,
providing sales literature, and engineering computer software programs that
emphasize the attributes of a Fund. Such assistance may be predicated upon the
amount of shares the Financial Intermediary sells or may sell, and/or upon the
type and nature of sales or marketing support furnished by the Financial
Intermediary.
Transfer Agent, Custodian and Fund Accountant
Federated Shareholder Services Company, Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779, serves as the transfer agent and dividend disbursing
agent for each Fund. IBT, 200 Clarendon Street, Boston, MA 02116 acts as the
custodian of each Fund's and each Portfolio's assets. Securities held for a
Portfolio may be held by a sub-custodian bank approved by the Trustees or the
Custodian of the Portfolio Trust. IBT (Canada) provides fund accounting services
to the Funds and the Portfolios, including (i) calculation of the daily net
asset value for the Funds and the Portfolios; (ii) monitoring compliance with
investment portfolio restrictions, including all applicable federal securities
and other regulatory requirements; and (iii) monitoring each Fund's and
Portfolio's compliance with the requirements applicable to a regulated
investment company under the Code.
Expenses
In addition to the fees payable under the various agreements discussed above,
each Fund and each Portfolio is responsible for usual and customary expenses
associated with its respective operations. Such expenses may include
organization expenses, legal fees, audit fees and expenses, insurance costs, the
compensation and expenses of the Directors or Trustees, as the case may be,
registration fees under applicable securities laws, fund accounting fees,
custodian fees and extraordinary expenses. For each Fund, such expenses also
include transfer, registrar and dividend disbursing costs, and the expenses of
printing and mailing reports and notices and proxy statements to Fund
shareholders. For each Portfolio, such expenses also include brokerage expenses.
DFM has agreed that it will reimburse each Fund through at least August 31,
1998, to the extent necessary to maintain each Fund's total operating expenses
(which includes expenses of the Fund and its corresponding Portfolio but does
not cover extraordinary expenses during the period) at not more than 1.60%,
2.35%, 1.30% and 2.05% of the average annual net assets of Class A Shares of the
Equity Funds, the Class B Shares of the Equity Funds, the Class A Shares of the
European Bond Fund and the Class B 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 and Class B Shares
Holders of Class A Shares and Class B Shares bear their allocable portion of a
Fund's expenses along with their allocable share of the corresponding
Portfolio's operating expenses. At present, the only expenses which are
allocated specifically to Class A Shares and Class B Shares as classes are
expenses under the Distribution Plan and expenses under the Service Plan.
However, the Directors reserve the right to allocate certain other expenses to
holders of Class A Shares and Class B Shares ("Class Expenses"). In any case,
Class Expenses would be limited to: distribution fees; shareholder services
fees; transfer agent fees as identified by the Transfer Agent as attributable to
holders of Class A Shares and Class B Shares; printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders as attributable to holders of
Class A Shares and Class B Shares; registration fees paid to the Securities and
Exchange Commission and to state securities commissions as attributable to
holders of Class A Shares and Class B Shares; expenses related to administrative
personnel and services as required to support holders of Class A Shares and
Class B Shares; legal fees relating solely to Class A Shares or Class B Shares;
and Directors' fees incurred as a result of issues related solely to Class A
Shares or Class B Shares.
Portfolio Brokerage
The estimated annual portfolio turnover rate for the Top 50 Europe Portfolio,
Provesta Portfolio, Investa Portfolio, and 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 amount of
brokerage commissions and taxes on realized capital gains to be borne by the
shareholders of a Fund tend to increase as the level of portfolio activity
increases.
In effecting securities transactions, the Adviser seeks to obtain the best price
and execution of orders. In selecting a broker, the Adviser considers a number
of factors including: the broker's ability to execute orders without disturbing
the market price; the broker's reliability for prompt, accurate confirmations
and on-time delivery of securities; the broker's financial condition and
responsibility; the research and other investment information provided to the
Adviser by the broker; and the commissions charged. Accordingly, the commissions
charged by any such broker may be greater than the amount another firm might
charge if the Adviser determines in good faith that the amount of such
commissions is reasonable in relation to the value of the brokerage services and
research information provided by such broker.
The Adviser may direct a portion of a Portfolio's securities transactions to
certain unaffiliated brokers which in turn use a portion of the commissions they
receive from a Portfolio to pay other unaffiliated service providers on behalf
of that Portfolio for services provided for which the Portfolio would otherwise
be obligated to pay. Such commissions paid by a Portfolio are at the same rate
paid to other brokers for effecting similar transactions in listed equity
securities.
Deutsche Bank AG or one of its subsidiaries or affiliates may act as one of the
agents of the Portfolios in the purchase and sale of portfolio securities when,
in the judgment of the Adviser, that firm will be able to obtain a price and
execution at least as favorable as other qualified brokers. As one of the
primary brokers used by the Portfolios, Deutsche Bank AG receives brokerage
commissions from each Portfolio.
On those occasions when the Adviser deems the purchase or sale of a security to
be in the best interests of a Portfolio as well as other customers, the Adviser,
to the extent permitted by applicable laws and regulations, may, but is not
obligated to, aggregate the securities to be sold or purchased for a Portfolio
with those to be sold or purchased for other customers in order to obtain best
execution, including lower brokerage commissions, if appropriate. In such event,
allocation of the securities so purchased or sold as well as any expenses
incurred in the transaction are made by the Adviser in the manner it considers
to be most equitable and consistent with its fiduciary obligations to its
customers, including the Portfolio. In some instances, this procedure might
adversely affect a Portfolio.
INVESTING IN THE FUNDS
Each Fund offers investors two classes of shares that carry sales charges and
contingent deferred sales charges in different forms and amounts and which bear
different levels of expenses.
Class A Shares
An investor who purchases Class A Shares of a Fund pays a maximum sales charge
of 5.50% for the Equity Funds and 4.50% for the European Bond Fund 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 when shares
that were purchased without a sales charge 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 B 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. Both Class A Shares and Class B Shares will bear shareholder
services fees. Class B Shares will automatically convert into Class A Shares,
based on relative net asset value, on or about the fifteenth of the month eight
full years after the purchase date. Class B Shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made, but (until conversion) will have a higher expense ratio and
pay lower dividends than Class A Shares due to the higher 12b-1 fees.
PURCHASE OF SHARES
Shares of each Fund are sold on days on which the New York Stock Exchange is
open. Shares of a Fund may be purchased as described below, either through a
Financial Intermediary (such as a bank or broker/dealer which has a sales
agreement with the Distributor) or by sending a wire or a check directly to the
Fund, with a minimum initial investment of $5,000 for Class A Shares and Class B
Shares. Additional investments can be made for as little as $500. The minimum
initial investment for retirement plan participants is $1,000. The minimum
subsequent investment for retirement plan participants is $100. (Financial
Intermediaries may impose different minimum investment requirements on their
customers.)
In connection with any sale, the Distributor may from time to time offer certain
items of nominal value to any shareholder or investor. The Funds reserve the
right to reject any purchase request. An account must be established through a
Financial Intermediary or by completing, signing, and returning the new account
form available from the Funds before shares can be purchased.
Investing in Class A Shares
Class A Shares of each Fund are sold at their net asset value next determined
after an order is received, plus a sales charge as follows:
Equity Funds
Sales Charge Dealer
as a Percentage of Concession as
Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less
than $100,000 4.50% 4.71% 3.75%
$100,000 but less
than $250,000 3.50% 3.63% 2.75%
$250,000 but less
than $500,000 2.50% 2.56% 2.00%
$500,000 but less
than $1 million 2.00% 2.04% 1.75%
$1 million or greater None None Up to 1.00%*
* See "Dealer Concession" below.
European Bond Fund
Sales Charge Dealer
as a Percentage of Concession as
Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
Less than $50,000 4.50% 4.71% 4.00%
$50,000 but less
than $100,000 4.00% 4.17% 3.50%
$100,000 but less
than $250,000 3.50% 3.63% 2.75%
$250,000 but less
than $500,000 2.50% 2.56% 2.00%
$500,000 but less
than $1 million 2.00% 2.04% 1.75%
$1 million or greater None None Up to 1.00%*
*See "Dealer Concession" below.
Dealer Concession
The dealer concession may be changed from time to time but will remain the same
for all dealers. Dealer concession will be paid to dealers who initiate and are
responsible for purchases of $1 million or more. Any portion of the sales charge
which is not paid to a dealer will be retained by the Distributor. The
Distributor, at its expense, may provide additional promotional incentives to
dealers. In some instances, these incentives may be offered only to certain
dealers who have sold or may sell significant numbers of shares of the Fund or
other Deutsche Funds.
The sales charge for shares sold other than through registered broker/dealers
will be retained by the Distributor. The Distributor may pay fees to banks out
of the sales charge in exchange for sales and/or administrative services
performed on behalf of the bank's customers in connection with the initiation of
customer accounts and purchases of shares.
Reducing or Eliminating the Sales Charge
The sales charge can be reduced or eliminated on the purchase of Class A Shares
through:
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 act as custodian for a minor child;
3. Registered representatives, bank trust officers, certified financial planners
and other employees (and their immediate families) of investment professionals
who have entered into a supplemental agreement with the Distributor;
4. IRA Rollover accounts sponsored by Deutsche Morgan Grenfell, Inc., Deutsche
Bank Trust Company, Deutsche Bank AG, or any of its affiliates as administrator,
trustee or custodian, provided that the distribution proceeds are made from a
qualified retirement plan or from a 403(b)(7) plan that is sponsored,
administered or custodied by Deutsche Bank Trust Company or any of its
affiliates, and provided that, at the time of such distribution, such qualified
retirement plan or 403(b)(7) plan met the requirements of an Eligible Benefit
Plan and all or a portion of such plan's assets were invested in the Deutsche
Funds or certain other products made available by the Distributor to such plans;
5. As part of an Eligible Benefit Plan having a minimum of 250 eligible
employees or a minimum of $1,000,000, or such lesser amount as may be determined
by the Distributor, invested in Deutsche Funds;
6. Investor accounts through certain broker-dealers and other Financial
Intermediaries that have entered into supplemental agreements with the
Distributor, which include a requirement that such shares be sold for the
benefit of clients participating in a "wrap account" or similar program under
which such clients pay a fee to the broker-dealer or other Financial
Intermediary, or such other accounts to which the broker-dealer or other
Financial Intermediary charges an asset management fee;
7. Qualified separate accounts maintained by an insurance company pursuant to
the laws of any State or territory of the United States;
8. Trust companies and bank trust departments, including Deutsche Bank Trust
Company and its affiliates, initially investing at least $100,000 of assets held
in a fiduciary, agency, advisory, custodial or similar capacity on behalf of any
one of their investor clients;
9. Accounts investing $100,000 or more of (1) a State or territory of the United
States, county, city or instrumentality thereof, (2) charitable organizations as
defined under Section 501(c)(3) of the Code, and (3) charitable remainder trusts
or life income pools as defined under Section 501(c)(3) of the Code.
Quantity Discounts and Accumulated Purchases
Larger purchases reduce the sales charge paid. A Fund will combine purchases of
Class A Shares made on the same day by the investor, the investor's spouse, and
the investor's children under age 21 when it calculates the sales charge. In
addition, the sales charge, if applicable, is reduced for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Class A Shares is made in a Fund, the Fund will
consider the previous purchases still invested in the Fund. For example, if a
shareholder already owns Class A Shares of an Equity Fund having a current value
at the public offering price of $30,000 and he purchases $20,000 more at the
current public offering price, the sales charge on the additional purchase
according to the schedule now in effect would be 4.50%, not 5.50%.
To receive the sales charge reduction, the Distributor must be notified by the
shareholder in writing or by his Financial Intermediary at the time the purchase
is made that Class A Shares are already owned or that purchases are being
combined. A Fund will reduce the sales charge after it confirms the purchases.
Concurrent Purchases
For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of Class A Shares of two or more of
the Deutsche Funds, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in Class A Shares of one
of the Deutsche Funds with a sales charge, and $20,000 in another Fund, the
sales charge would be reduced to reflect a $50,000 purchase.
To receive this sales charge reduction, the Distributor must be notified by the
shareholder in writing or by his Financial Intermediary at the time the
concurrent purchases are made. A Fund will reduce the sales charge after the
purchases are confirmed.
Letter of Intent
If a shareholder intends to purchase at least $50,000 of Class A Shares of the
Deutsche Funds (excluding the Deutsche U.S. Money Market Fund) over the next 13
months, the sales charge may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales charge adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the Custodian to hold 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 his Financial Intermediary of
the reinvestment in order to eliminate a sales charge. If the shareholder
redeems his Class A Shares in a Fund, there may be tax consequences. See "Tax
Treatment of Reinvestments" below.
Purchases with Proceeds from Redemptions of Unaffiliated Investment Companies
Investors may purchase Class A Shares at net asset value, without a sales
charge, with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales charge or commission
and were not distributed by the Distributor. The purchase must be made within 60
days of the redemption, and the Distributor must be notified by the investor in
writing, or by his Financial Intermediary, at the time the purchase is made.
From time to time, the Distributor may offer dealers compensation for shares
purchased under this program. If shares are purchased in this manner,
redemptions of these shares will be subject to a contingent deferred sales
charge for one year from the date of purchase. Shareholders will be notified
prior to the implementation of any special offering as described above.
Tax Treatment of Reinvestments
Generally, a reinvestment of the proceeds of a redemption of shares in a Fund or
an unaffiliated investment company will not alter the federal income tax status
of any capital gain realized on the redemption of the shares. However, any loss
on the disposition of the shares in a Fund will be disallowed to the extent
shares of the same Fund are purchased within a 61-day period beginning 30 days
before and ending 30 days after the disposition of shares. Further, if the
proceeds are reinvested within 90 days after the redeemed shares were acquired,
the sales charge imposed on the original acquisition, to the extent of the
reduction in the sales charge on the reinvestment, will not be taken into
account in determining gain or loss on the disposition of the original shares,
but will be treated instead as incurred in connection with the acquisition of
the replacement shares.
Investing in Class B Shares
Class B Shares are sold at their net asset value next determined after an order
is received. While Class B Shares are sold without an initial sales charge,
under certain circumstances described under "Contingent Deferred Sales
Charge--Class B Shares," a contingent deferred sales charge may be applied by
the Distributor at the time Class B Shares are redeemed.
Conversion of Class B Shares
Class B Shares will automatically convert into Class A Shares on or about the
fifteenth of the month eight full years after the purchase date, except as noted
below. Such conversion will be on the basis of the relative net asset values per
share, without the imposition of any sales charge, fee, or other charge. Class B
Shares acquired by exchange from Class B Shares of another Deutsche Fund will
convert into Class A Shares based on the time of the initial purchase. For
purposes of conversion to Class A Shares, shares purchased through the
reinvestment of dividends and distributions paid on Class B Shares will be
considered to be held in a separate sub-account. Each time any Class B Shares in
the shareholder's account (other than those in the sub-account) convert to Class
A Shares, an equal pro rata portion of the Class B Shares in the sub-account
will also convert to Class A Shares. The conversion of Class B Shares to Class A
Shares is subject to the continuing availability of a ruling from the Internal
Revenue Service or an opinion of counsel that such conversions will not
constitute taxable events for federal tax purposes. There can be no assurance
that such ruling or opinion will be available, and the conversion of Class B
Shares to Class A Shares will not occur if such ruling or opinion is not
available. In such event, Class B Shares would continue to be subject to higher
expenses than Class A Shares for an indefinite period.
Purchasing Shares Through a Financial Intermediary
An investor may call his Financial Intermediary (such as a bank or an investment
dealer) to place an order to purchase shares. Orders placed through a Financial
Intermediary are considered received when the Fund is notified of the purchase
order. Shares will not be issued in respect of such orders until payment is
converted into federal funds. Purchase orders through a registered broker/dealer
must be received by the broker before 4:00 p.m. (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. Financial Intermediaries may charge
additional fees for their services.
The Financial Intermediary which maintains investor accounts in Class B Shares
with a Fund must do so on a fully disclosed basis unless it accounts for share
ownership periods used in calculating the contingent deferred sales charge (see
"Contingent Deferred Sales Charge"). In addition, advance payments made to
Financial Intermediaries may be subject to reclaim by the Distributor for
accounts transferred to Financial Intermediaries which do not maintain investor
accounts on a fully disclosed basis and do not account for share ownership
periods.
Purchasing Shares by Wire
Once an account has been established, shares may be purchased by Federal Reserve
wire by calling the Transfer Agent. All information needed will be taken over
the telephone, and the order is considered received when IBT receives payment by
wire. Federal funds should be wired as follows: Investors Bank & Trust, Boston,
MA; ABA 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 IRA
accounts. For further details, contact the Funds and consult a tax adviser.
EXCHANGE PRIVILEGE
Class A Shares
Class A shareholders may exchange all or some of their shares for Class A Shares
of other Deutsche Funds at relative net asset value. None of the Deutsche Funds
imposes any additional fees on exchanges. 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."
Please contact your Financial Intermediary directly or the Distributor for
information on and prospectuses for the Deutsche Funds into which your shares
may be exchanged free of charge.
Requirements for Exchange
Shareholders using this privilege must exchange shares having a net asset value
equal to the minimum investment requirements of the Deutsche Fund into which the
exchange is being made. The shareholder must receive a Prospectus of the
Deutsche Fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
proceeds invested in the same class of shares of the other Fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified in advance of the modification or termination of the exchange
privilege.
Tax Consequences
An exchange will be treated as a taxable sale for federal income tax purposes
and any gain or loss realized will be subject to the rules applicable to
reinvestments (described above under "Tax Treatment of Reinvestments"). See
"Taxes" below for additional information.
Making an Exchange
Instructions for exchanging may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of a Fund may have
difficulty in making exchanges by telephone through brokers and other Financial
Intermediaries during times of drastic economic or market changes. If a
shareholder cannot contact his broker or Financial Intermediary by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail 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. Investors who redeem shares through a Financial Intermediary may be
charged a service fee by that Financial Intermediary. Redemption requests must
be received in proper form and can be made as described below.
Redeeming Shares Through a Financial Intermediary
Shares of a Fund may be redeemed by calling your Financial Intermediary to
request the redemption. Shares will be redeemed at the net asset value next
determined after a Fund receives the redemption request from the Financial
Intermediary, less any applicable contingent deferred sales charge. Redemption
requests made through a registered broker/dealer must be received by the broker
before 4:00 p.m. (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 Distributor. Proceeds will be mailed in the form of a check, to the
shareholder's address of record or by wire transfer to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
The minimum amount for a wire transfer is $1,000. Proceeds from redeemed shares
purchased by check or through ACH will not be wired until the payment has
cleared. Proceeds from redemption requests received on holidays when wire
transfers are restricted will be wired the following business day.
Telephone instructions will be recorded. If reasonable procedures are not
followed by a Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, redemption by mail (see "Redeeming Shares by Mail") should be
considered. If at any time a Fund shall determine it necessary to terminate or
modify the telephone redemption privilege, shareholders would be promptly
notified.
Redeeming Shares by Mail
Shares may be redeemed in any amount by mailing a written request to: Deutsche
Funds, Inc., Federated Shareholder Services Company, P.O. Box 8612, Boston, MA
02266-8612. If share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: Fund Name and the share Class name; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days after receipt of a proper written redemption request. Dividends are
paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record, must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined by the Securities and Exchange Act of 1934,
as amended.
The Funds do not accept signatures guaranteed by a notary public.
Each Fund and the Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. A Fund may elect in the future to limit
eligible signature guarantors to institutions that are members of a signature
guarantee program. Each Fund and the Transfer Agent reserve the right to amend
these standards at any time without notice.
SPECIAL REDEMPTION FEATURES
Systematic Withdrawal Program
The Systematic Withdrawal Program permits the shareholder to request withdrawal
of a specified dollar amount (minimum $100) on either a monthly or quarterly
basis from accounts with a $10,000 minimum at the time the shareholder elects to
participate in the Systematic Withdrawal Program. Under this program, shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder.
Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to shares, and the fluctuation
of the net asset value of shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in a Fund. In
addition, shareholder accounts are subject to minimum balances. See "Account and
Share Information." For this reason, payments under this program should not be
considered as yield or income on the shareholder's investment in a Fund. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through his Financial Intermediary. Due to the fact that Class A Shares
are sold with a sales charge, it is not advisable for shareholders to continue
to purchase Class A Shares while participating in this program. A contingent
deferred sales charge may be imposed on Class B Shares.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales charge upon
redemption of their shares under the following circumstances:
Class A Shares
No initial sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions within
one year of purchase. Any applicable contingent deferred sales charge will be
imposed on the lesser of the net asset value of the redeemed shares at the time
of purchase or the net asset value of the redeemed shares at the time of
redemption.
Class B Shares
Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those shares will be charged a contingent deferred
sales charge by the Distributor. Any applicable contingent deferred sales charge
will be imposed on the lesser of (i) the net asset value of the redeemed shares
at the time of purchase (or, if such redeemed shares were acquired in an
exchange of Class B Shares of another Fund, at the time of purchase of the Class
B Shares of the exchanged-from Fund) or (ii) the net asset value of the redeemed
shares at the time of redemption.
Class A Shares and Class B Shares
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
Distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to applicable Class A Shares.
Redemptions will be processed in a manner intended to maximize the amount of
redemption which will not be subject to a contingent deferred sales charge. In
computing the amount of the applicable contingent deferred sales charge,
redemptions are deemed to have occurred in the following order: (1) shares
acquired through the reinvestment of dividends and long-term capital gains; (2)
shares held for more than six full years from the date of purchase with respect
to Class B Shares and one full year from the date of purchase with respect to
applicable Class A Shares; (3) shares held for fewer than six years with respect
to Class B Shares and one full year from the date of purchase with respect to
applicable Class A Shares on a first-in, first-out basis. A contingent deferred
sales charge is not assessed in connection with an exchange of Fund shares for
shares of other funds in the Deutsche Funds in the same class (see "Exchange
Privilege"). Any contingent deferred sales charge imposed at the time the Fund
shares issued in an exchange from another Deutsche Fund are redeemed is
calculated as if the shareholder had held the shares from the date on which he
became a shareholder of the exchanged-from Fund. Moreover, the contingent
deferred sales charge will be eliminated with respect to certain redemptions
(see "Contingent Deferred Sales Charge--Elimination of Contingent Deferred Sales
Charge").
Elimination of Contingent Deferred Sales Charge
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Code, of a shareholder; (2) redemptions
representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
701/2; and (3) involuntary redemptions by a Fund of shares in shareholder
accounts that do not comply with the minimum balance requirements. No contingent
deferred sales charge will be imposed on redemptions of shares held by Trustees,
employees and sales representatives of the Funds, the distributor, or affiliates
of the Funds or distributor; employees of any Financial Intermediary that sells
shares of the Funds pursuant to a sales agreement with the Distributor; and
spouses and children under the age of 21 of the aforementioned persons. Finally,
no contingent deferred sales charge will be imposed on the redemption of shares
originally purchased through a bank trust department, an investment adviser
registered under the Investment Advisers Act of 1940, or retirement plans where
the third party administrator has entered into certain arrangements with the
Distributor or its affiliates, or any other Financial Intermediary, to the
extent that no payments were advanced for purchases made through such entities.
The Trustees reserve the right to discontinue elimination of the contingent
deferred sales charge. Shareholders will be notified of such elimination. Any
shares purchased prior to the termination of such waiver would have the
contingent deferred sales charge eliminated as provided in the Fund's Prospectus
at the time of the purchase of the shares. If a shareholder making a redemption
qualifies for an elimination of the contingent deferred sales charge, the
shareholder must notify the Distributor or the transfer agent in writing that he
is entitled to such elimination.
ACCOUNT AND SHARE INFORMATION
Certificates and Confirmations
As transfer agent for the Funds, Federated Shareholder Services Company
maintains a Share account for each shareholder. Share certificates are not
issued unless requested in writing to Federated Shareholder Services Company. No
certificates will be issued for fractional shares.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Annual statements are sent to report dividends paid during the year
for the Equity Funds and monthly confirmations are sent to report dividends paid
during that month for the 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 Internal Revenue
Service ("IRS") on the Fund and passed on by the Fund to the shareholder. With
respect to individual investors and certain non-qualified retirement plans, U.S.
federal Regulations generally require the Funds to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of any dividends and
distributions (including the proceeds of any redemption) payable to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct, or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on a
federal income tax return. Furthermore, the IRS may notify the Funds to
institute backup withholding if the IRS determines a shareholder's TIN is
incorrect.
NET ASSET VALUE
A Fund's net asset value per share fluctuates. The net asset value for shares of
each class is determined by adding the interest of such class of shares in the
market value of a Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets), subtracting the interest of such class of shares in
the liabilities of such Fund and those attributable to such class of shares, and
dividing the remainder by the total number of such class of shares outstanding.
The net asset value for each class of shares may differ due to the variance in
daily net income realized by each class. Such variance will reflect only accrued
net income to which the shareholders of a particular class are entitled. Values
of assets in each Portfolio are determined on the basis of their market value or
where market quotations are not determinable, at fair value as determined by the
Trustees of the Portfolio Trust. See "Net Asset Value" in the Statement of
Additional Information for information on valuation of portfolio securities.
Each Fund computes its net asset value once daily at 4:00 p.m. (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 Federated Investors Tower, Pittsburgh, PA 15222-3779; its
toll-free telephone number is 888-4-DEUTSCHE.
The Articles of Incorporation currently permit the Corporation to issue
2,500,000,000 shares of common stock, par value $0.001 per share, of which
10,000,000 shares have been classified as shares of each Fund. The Board of
Directors of the Corporation may increase the number of shares the Corporation
is authorized to issue without the approval of shareholders. The Board of
Directors of the Corporation also has the power to designate one or more
additional series of shares of common stock and to classify and reclassify any
unissued shares with respect to such series. Currently there are 11 such series
and two classes of shares for 10 of the Funds known as Class A Shares and Class
B Shares.
Each share of a Fund or Class shall have equal rights with each other share of
that Fund or Class with respect to the assets of the Corporation pertaining to
that Fund or Class. Upon liquidation of a Fund, shareholders of each Class are
entitled to share pro rata in the net assets of the Fund available for
distribution to their Class.
Shareholders of a Fund are entitled to one vote for each full share held and to
a fractional vote for fractional shares. The voting rights of shareholders are
not cumulative. Shares have no preemptive or conversion rights (other than the
automatic conversion of Class B Shares into Class A Shares as described under
"Purchase of Shares--Conversion of Class B Shares"). The rights of redemption
are described elsewhere herein. Shares are fully paid and nonassessable by the
Corporation. It is the intention of the Corporation not to hold meetings of
shareholders annually. The Directors of the Corporation may call meetings of
shareholders for action by shareholder vote as may be required by the 1940 Act
or as may be permitted by the Articles of Incorporation or By-laws.
The Corporation's Articles of Incorporation provide that the presence in person
or by proxy of the holders of record of one third of the shares outstanding and
entitled to vote thereat shall constitute a quorum at all meetings of
shareholders of a Fund, except as otherwise required by applicable law. The
Articles of Incorporation further provide that all questions shall be decided by
a majority of the votes cast at any such meeting at which a quorum is present,
except as otherwise required by applicable law.
The Corporation's Articles of Incorporation provide that, at any meeting of
shareholders of a Fund or Class, a Financial Intermediary may vote any shares as
to which that Financial Intermediary is the agent of record and which are
otherwise not represented in person or by proxy at the meeting, proportionately
in accordance with the votes cast by holders of all shares otherwise represented
at the meeting in person or by proxy as to which that Financial Intermediary is
the agent of record. Any shares so voted by 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 law of the State of New York. The Deutsche Portfolios' Declaration of Trust
provides that a Fund and other entities investing in a Portfolio (e.g., other
investment companies, insurance company separate accounts and common and
commingled trust funds) are each liable for all obligations of the Portfolio.
However, the risk of a Fund incurring financial loss on account of such
liability is limited to circumstances in which both inadequate insurance existed
and the Portfolio itself was unable to meet its obligations. Accordingly, the
Directors of the Corporation believe that neither the Funds nor their
shareholders will be adversely affected by reason of the investment of all of
the assets of a Fund in its corresponding Portfolio.
Each investor in a Portfolio, including its corresponding Fund, may add to or
reduce its investment in the Portfolio on each day the New York Stock Exchange
is open for regular trading. At 4:00 p.m. (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. 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 will be
taxable even though it represents a return of invested capital. Investors should
consider the tax implications of buying shares just prior to a distribution when
the price of the shares may reflect the amount of the forthcoming distribution.
Annual statements as to the current federal tax status of distributions will be
mailed to shareholders at the end of each taxable year.
Any gain or loss realized on the redemption or exchange of a Fund's shares by a
shareholder who is not a dealer in securities generally will be treated as
long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. However, any loss
realized by a shareholder upon the redemption or exchange of shares in a Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received by the shareholder
with respect to such shares. In addition, no loss will be allowed on the sale or
other disposition of shares of a Fund if, within a period beginning 30 days
before the date of such sale or disposition and ending 30 days after such date,
the holder acquires (such as through dividend reinvestment) securities that are
substantially identical to the shares of such Fund. For additional information
regarding the tax consequences of the reinvestment of the proceeds of a
redemption see "Tax Treatment of Reinvestments" above.
It is anticipated that certain income of the Funds will be subject to foreign
withholding or other taxes and that each Fund will be eligible to elect to "pass
through" to its shareholders the amount of foreign income taxes (including
withholding taxes) paid by such Fund. If a Fund makes this election, a
shareholder would include in gross income his pro rata share of the foreign
income taxes passed through and would be entitled either to deduct such taxes in
computing his taxable income (if the shareholder itemizes deductions) or to
claim a credit (which would be subject to certain limitations) for such taxes
against his U.S. federal income tax liability. A Fund will make such an election
only if it deems it to be in the best interests of its shareholders and will
notify each shareholder in writing each year that it makes the election of the
amount of foreign taxes, if any, to be treated as paid by the shareholder.
A Fund may be required to backup withhold for U.S. federal income tax purposes
31% of any dividends and distributions (including the proceeds of any
redemption) payable to a shareholder who fails to provide the Fund with his
correct TIN or to make required certifications, or who has been notified by the
IRS that he is subject to backup withholding. Backup withholding is not an
additional tax; amounts withheld may be credited against the shareholder's U.S.
federal income tax liability.
Recent tax legislation will affect the above-described capital gains holding
periods and rates for the Funds and their shareholders, effective for
transactions on or after July 1, 1997. Consult your tax adviser for further
details.
For further information on taxes, see "Taxes" in the Statement of Additional
Information.
ADDITIONAL INFORMATION
Each Fund sends to its shareholders annual and semiannual reports. The financial
statements appearing in annual reports are audited by independent accountants.
Shareholders also will be sent confirmations of each purchase and redemption and
monthly statements, reflecting all other account activity, including dividends
and any distributions reinvested in additional shares or credited as cash.
In addition to selling beneficial interests to its corresponding Fund, a
Portfolio may sell beneficial interests to other mutual funds or institutional
investors. Such investors will invest in a Portfolio on the same terms and
conditions and will pay a proportionate share of the Portfolio's expenses.
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
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
Philippines
Manila
Singapore
Singapore Stock Exchange
** Not applicable to the Deutsche European Mid-Cap Fund.
*** Not applicable to the Deutsche German Equity Fund.
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 on the European Union and
not contracting states of the treaty on the European Economic Area
Japan**
Over-the-Counter Market
Canada**
Over-the-Counter Market
South Korea**
Over-the Counter Market
Switzerland
Free Trading Zurich, Free Trading Geneva, Exchange Bern
Over the Counter Market of the members of the International Securities
Market Association (ISMA), Zurich
United States**
NASDAQ-System
Over-the-Counter Market (organized markets by the National Association of
Securities Dealers, Inc.)
** Not applicable to the Deutsche European Mid-Cap Fund.
*** Not applicable to the Deutsche German Equity Fund.
