1933 Act File No. 333-7008
1940 Act File No. 811-8227
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
----
Pre-Effective Amendment No. ......
--------
Post-Effective Amendment No. 1 ...... X
----- ----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 7 ...... X
---- ----
DEUTSCHE FUNDS, INC.
(Formerly, Deutsche Family of Funds, Inc.)
(Exact Name of Registrant as Specified in Charter)
5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-7010
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
Victor R. Siclari, Esquire Copy to: John T. Bostelman,
Federated Investors Tower Sullivan & Cromwell
Pittsburgh, PA 15222-3779 125 Broad Street
New York, New York 10019 New York, New York 10004
(Name and Address of Agent for Service)
New York, New York 10022
It is proposed that this filing will become effective
(check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on APRIL 29, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A Item No. Location
<TABLE>
<CAPTION>
Part A
<S> <C> <C>
Item 1. Cover Page . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . Expense Summary
Item 3. Condensed Financial Information. . . . . . Financial Highlights
Item 4. General Description of Registrant. . . . . Investment Objectives Policies and
Restrictions; Investing in the Funds
Item 5. Management of the Fund . . . . . . . . . . Management of the Corporation and the
Portfolio Trust; Expense Summary
Item 5A. Management's Description of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities . . . . Investing in the Funds
Item 7. Purchase of Securities Being Offered . . . Purchase of Shares; Special Purchase Features
Item 8. Redemption or Repurchase . . . . . . . . . Redemption of Shares; Exchange Privileges;
Special Redemption Features; Contingent
Deferred Sales Charge
Item 9. Pending Legal Proceedings. ... . . . . . . Not Applicable
Part B
Item 10. Cover Page . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents. . . . . . . . . . . . . Table of Contents
Item 12. General Information and History. . . . . . Not Applicable
Item 13. Investment Objectives and Policies . . . . Investment Objectives and Policies;
Investment Restrictions
Item 14. Management of the Fund . . . . . . . . . . Directors, Trustees and Officers; Manager;
Administrator; Off- Shore Agent, Service
Agent; Distributor
Item 15. Control Persons and Principal
Holders of Securities . . . . . . . . . Directors, Trustees and Officer
Item 16. Investment Advisory and Other Services . . Adviser; Administrator; Off-Shore Agent;
Distributor; Servicing Agent
Item 17. Brokerage Allocation and Other Practices . Portfolio Transactions
Item 18. Capital Stock and Other Securities . . . . Description of Shares
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered. . . . . . . . Purchase of
Shares; Redemption of Shares; Net Asset Value;
Redemption in Kind
Item 20. Tax Status . . . . . . . . . . . . . . . . Federal Taxes
Item 21. Underwriters . . . . . . . . . . . . . . . Administrator; Distributor; Purchase of Shares
Item 22. Calculation of Performance Data . . . . . Computation of Performance
Item 23. Financial Statements . . . . . . . . . . . Financial Statements
</TABLE>
Supplement to the Prospectus, dated April 30, 1998.
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the first Semi-Annual Report for Deutsche Top 50 World,
Deutsche Top 50 Europe, Deutsche Top 50 Asia and Deutsche Top 50 U.S.
On the following pages you will find complete financial information concerning
your investment in the Deutsche Funds. Also included is a list of fund holdings,
and the fund's financial statements.
Please note that this report covers the period from the date of initial public
investment in the funds through February 28, 1998.
We are very proud of the funds we offer. Managed by the award-winning
professionals at Deutsche Fund Management, Inc., our funds are poised to take
advantage of the dynamic changes occurring in European, Asian and U.S. markets.*
The Deutsche Funds seek to provide you with a variety of ways to allocate assets
within the international portion of your portfolio, while seeking to enable you
to minimize risks that sometimes may be associated with international investing.
May I suggest that you take the time to review this report and familiarize
yourself with your fund's strategy and holdings. We believe that the true
measure of any fund's performance is over the longer term.
Thank you for selecting Deutsche Funds to pursue your financial goals. We are
committed to providing quality investment products, coupled with our further
commitment to the highest level of service possible.
Sincerely,
/s/ Brian Lee
Brian Lee
President
April 15, 1998
* Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards. Emerging markets structures may be less diverse and
mature, and their political systems may be less stable. In addition, Asian and
Pacific Rim countries may have relatively unstable governments, economies based
on only a few commodities or industries, and securities markets trading
infrequently or in low volumes.
TRUSTEES OFFICERS
Mutual funds are not deposits or obligations of any bank, are not guaranteed by
any bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the funds' prospectuses which contain facts
concerning their objective and policies, management fees, expenses and other
information.
Supplement to the Prospectus, dated April 30, 1998.
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the first Semi-Annual Report for Deutsche European Mid-
Cap Fund, Deutsche German Equity Fund, Deutsche Japanese Equity Fund, Deutsche
Global Bond Fund and Deutsche European Bond Fund.
On the following pages you will find complete financial information concerning
your investment in the Deutsche Funds. Also included is a list of fund holdings,
and the fund's financial statements.
Please note that this report covers the period from the date of initial public
investment in the funds through February 28, 1998.
We are very proud of the funds we offer. Managed by the award-winning
professionals at Deutsche Fund Management, Inc., our funds are poised to take
advantage of the dynamic changes occurring in European, Asian and U.S. markets.*
The Deutsche Funds seek to provide you with a variety of ways to allocate assets
within the international portion of your portfolio, while seeking to enable you
to minimize risks that sometimes may be associated with international investing.
May I suggest that you take the time to review this report and familiarize
yourself with your fund's strategy and holdings. We believe that the true
measure of any fund's performance is over the longer term.
Thank you for selecting Deutsche Funds to pursue your financial goals. We are
committed to providing quality investment products, coupled with our further
commitment to the highest level of service possible.
Sincerely,
/s/ Brian Lee
Brian Lee
President
April 15, 1998
* Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards. Emerging markets structures may be less diverse and
mature, and their political systems may be less stable. In addition, Asian and
Pacific Rim countries may have relatively unstable governments, economies based
on only a few commodities or industries, and securities markets trading
infrequently or in low volumes.
TRUSTEES OFFICERS
Mutual funds are not deposits or obligations of any bank, are not guaranteed by
any bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the funds' prospectuses which contain facts
concerning their objective and policies, management fees, expenses and other
information.
Supplement to the Prospectus, dated April 30, 1998
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the first Semi-Annual Report for Deutsche Top 50 Europe,
Deutsche European Mid-Cap Fund, Deutsche German Equity Fund and Deutsche
European Bond Fund.
On the following pages you will find complete financial information concerning
your investment in Deutsche Funds. Also included is a list of fund holdings, and
the fund's financial statements.
Please note that this report covers the period from the date of initial public
investment in the funds through February 28, 1998.
We are very proud of the funds we offer. Managed by the award-winning
professionals at Deutsche Fund Management, Inc., our funds are poised to take
advantage of the dynamic changes occurring in European, Asian and U.S. markets.*
The Deutsche Funds seek to provide you with a variety of ways to allocate assets
within the international portion of your portfolio, while seeking to enable you
to minimize risks that sometimes may be associated with international investing.
May I suggest that you take the time to review this report and familiarize
yourself with your fund's strategy and holdings. We believe that the true
measure of any fund's performance is over the longer term.
Thank you for selecting Deutsche Funds to pursue your financial goals. We are
committed to providing quality investment products, coupled with our further
commitment to the highest level of service possible.
Sincerely,
/s/ Brian Lee
Brian Lee
President
April 15, 1998
* Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards. In addition, emerging markets structures may be less
diverse and mature, and their political systems may be less stable.
TRUSTEES OFFICERS
Mutual funds are not deposits or obligations of any bank, are not guaranteed by
any bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the funds' prospectuses which contain facts
concerning their objective and policies, management fees, expenses and other
information.
Supplement to Prospectuses dated April 30, 1998.
Statements of Assets and Liabilities
Deutsche Funds, Inc.
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
<S> <C> <C> <C> <C>
Assets:
Investments in corresponding Deutsche Portfolios at value $ 36,079 $15,908 $14,996 $1,038,124
Receivable from Manager for expense reimbursement 54,349 54,490 49,523 66,634
Deferred organization costs 11,553 11,560 11,636 11,553
Total assets 101,981 81,958 76,155 1,116,311
Liabilities:
Service fees payable--Class A 20 13 11 364
Organization costs payable 12,588 12,595 12,588 12,588
Accrued expenses and other liabilities 52,255 52,066 48,309 56,614
Total liabilities 64,863 64,674 60,908 69,566
Net assets $ 37,118 $17,284 $15,247 $1,046,745
Net Assets Consist of:
Capital stock, $0.001 par value (authorized 10,000,000 shares for each Fund) 3 1 1 75
Paid-in capital 33,690 16,110 14,859 924,846
Undistributed (accumulated) net investment income (loss) 115 (7) 1 (489)
Undistributed (accumulated) net realized gain (loss) on investments
and foreign currency transactions 324 97 (661) 2,099
Net unrealized appreciation (depreciation) of investments
and foreign currency 2,986 1,083 1,047 120,214
Net assets $ 37,118 $17,284 $15,247 $1,046,745
Computation of Net Asset Value, Redemption Price and
Offering Price Per Share:
Net assets--Class A $ 37,118 $17,284 $15,247 $1,046,745
Shares outstanding--Class A 2,756 1,291 1,305 75,089
Net asset value and redemption price per share--Class A $13.47 $13.39 $11.69 $13.94
Offering price per share--Class A $14.25 $14.17 $12.37 $14.75
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Statements of Assets and Liabilities--Continued
Deutsche Funds, Inc.
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche Deutsche
European German Japanese Global European
Mid-Cap Equity Equity Bond Bond
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Assets:
Investments in corresponding Deutsche Portfolios
at value $18,449 $19,574 $ 9,681 $12,073 $13,814
Receivable from Manager for expense reimbursement 48,961 48,962 48,561 49,415 48,812
Deferred organization costs 11,663 11,663 11,663 11,643 11,663
Total assets 79,073 80,199 69,905 73,131 74,289
Liabilities:
Service fees payable--Class A 12 13 9 11 11
Organization costs payable 12,595 12,595 12,588 12,588 12,595
Accrued expenses and other liabilities 47,396 47,387 47,068 48,019 47,336
Total liabilities 60,003 59,995 59,665 60,618 59,942
Net assets $19,070 $20,204 $10,240 $12,513 $14,347
Net Assets Consist of:
Capital stock, $0.001 par value (authorized 10,000,000
shares for each Fund) 1 1 1 1 1
Paid-in capital 17,866 18,410 11,710 12,309 14,110
Undistributed (accumulated) net investment
income (loss) (69) (51) (29) 163 174
Undistributed (accumulated) net realized gain (loss)
on investments and foreign currency transactions 234 410 (479) 3 41
Net unrealized appreciation (depreciation) of
investments and foreign currency 1,038 1,434 (963) 37 21
Net assets $19,070 $20,204 $10,240 $12,513 $14,347
Computation of Net Asset Value, Redemption Price and
Offering Price Per Share:
Net assets--Class A $19,070 $20,204 $10,240 $12,513 $14,347
Shares outstanding--Class A 1,446 1,469 944 983 1,126
Net asset value and redemption price per
share--Class A $13.19 $13.75 $10.85 $12.73 $12.74
Offering price per share--Class A $13.96 $14.55 $11.48 $13.33 $13.34
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Statements of Operations
Deutsche Funds, Inc.
For the period from Commencement of Operations through February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
<S> <C> <C> <C> <C>
Investment Income:
Investment Income and Expenses allocated from the corresponding Deutsche
Portfolios:
Dividend income $ 195 $ 28 $ 31 $ 1,949
Less: foreign withholding taxes (1) (3) (2) --
Net dividend income 194 25 29 1,949
Interest income 52 53 44 1,344
Expenses (966) (1,347) (209) (15,936)
Net investment loss allocated from the corresponding Deutsche Portfolios (720) (1,269) (136) (12,643)
Expenses:
Audit fees 2,055 2,055 1,891 2,055
Legal fees 2,055 2,055 1,891 2,055
Accounting fees 7,809 7,809 7,184 7,809
Directors' fees and expenses 3,082 3,082 2,836 3,082
Administration fees 5 4 3 164
Insurance fees 452 452 415 452
Reports to Shareholders 6,576 6,576 6,050 6,576
Transfer agent fees 5,686 5,407 5,392 5,884
Registration fees 20,630 20,630 18,978 20,630
Other expenses 4,109 4,110 3,783 4,108
Amortization of organization costs 1,035 1,035 952 1,035
Service fees--Class A 20 13 11 630
Total expenses 53,514 53,228 49,386 54,480
Less: Expense reimbursement (54,349) (54,490) (49,523) (66,634)
Net expenses (835) (1,262) (137) (12,154)
Net investment income (loss) 115 (7) 1 (489)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
allocated from the corresponding Deutsche Portfolios:
Net realized gain (loss) on:
Investments 335 14 (644) 2,099
Foreign currency transactions (11) 83 (17) --
Net change in unrealized appreciation/depreciation on:
Investments 2,986 1,083 1,028 120,214
Foreign currency -- -- 19 --
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency from the corresponding Deutsche Portfolios 3,310 1,180 386 122,313
Net Increase (Decrease) in Net Assets Resulting from Operations $ 3,425 $ 1,173 $ 387 $121,824
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
The accompanying notes are an integral part of the Financial Statements.
</TABLE>
Statements of Operations--Continued
Deutsche Funds, Inc.
For the period from Commencement of Operations through February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche Deutsche
European German Japanese Global European
Mid-Cap Equity Equity Bond Bond
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Investment Income:
Investment Income and
Expenses allocated from the
corresponding Deutsche
Portfolios:
Dividend income $ 9 $ 37 $ 5 $ -- $ --
Less: foreign withholding
taxes (2) (10) (1) -- --
Net dividend income 7 27 4 -- --
Interest income 3 4 25 218 232
Expenses (587) (601) (508) (384) (484)
Net investment loss
allocated from the
corresponding
Deutsche Portfolios (577) (570) (479) (166) (252)
Expenses:
Audit fees 1,849 1,849 1,836 1,877 1,849
Legal fees 1,849 1,849 1,836 1,877 1,849
Accounting fees 7,028 7,028 6,976 7,132 7,028
Directors' fees and expenses 2,774 2,774 2,754 2,815 2,774
Administration fees 3 3 2 3 3
Insurance fees 406 406 403 412 406
Reports to Shareholders 5,918 5,918 5,875 6,006 5,918
Transfer agent fees 5,414 5,405 5,398 5,413 5,350
Registration fees 18,567 18,567 18,429 18,842 18,567
Other expenses 3,701 3,699 3,668 3,753 3,699
Amortization of organization
costs 932 932 925 945 932
Service fees--Class A 12 13 9 11 11
Total expenses 48,453 48,443 48,111 49,086 48,386
Less: Expense reimbursement (48,961) (48,962) (48,561) (49,415) (48,812)
Net expenses (508) (519) (450) (329) (426)
Net investment income
(loss) (69) (51) (29) 163 174
Net Realized and Unrealized
Gain (Loss) on Investments
and Foreign
Currency allocated from the
corresponding Deutsche
Portfolios:
Net realized gain (loss) on:
Investments 88 285 (505) (8) (22)
Foreign currency
transactions 146 125 26 11 63
Net change in unrealized
appreciation/depreciation
on:
Investments 1,038 1,434 (963) 39 26
Foreign currency -- -- -- (2) (5)
Net Realized and
Unrealized Gain (Loss) on
Investments and
Foreign Currency from the
Deutsche Portfolios 1,272 1,844 (1,442) 40 62
Net Increase (Decrease)
in Net Assets Resulting
From Operations $ 1,203 $ 1,793 $ (1,471) $ 203 $ 236
(a) Commencement of
operations: 10/17/97 10/17/97 10/20/97 10/15/97 10/17/97
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Statements of Changes in Net Assets
Deutsche Funds, Inc.
For the period from Commencement of Operations through February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations--
Net investment income (loss) $ 115 $ (7) $ 1 $ (489)
Net realized gain (loss) on investments and foreign currency
transactions 324 97 (661) 2,099
Net change in unrealized appreciation/depreciation on
investments and foreign currency 2,986 1,083 1,047 120,214
Net increase (decrease) in net assets resulting from operations 3,425 1,173 387 121,824
Capital Share Transactions: Class A
Net proceeds from shares sold 25,299 5,000 6,672 913,810
Net cost of shares redeemed (2,718) -- (2,923) --
Net increase in net assets resulting from capital
share transactions 22,581 5,000 3,749 913,810
Total increase (decrease) in net assets 26,006 6,173 4,136 1,035,634
Net Assets:
Beginning of period 11,112 11,111 11,111 11,111
End of period(b) $ 37,118 $ 17,284 $ 15,247 $1,046,745
Capital Shares--Class A
Shares outstanding, beginning of period 889 889 889 889
Shares sold 2,073 402 678 74,200
Shares redeemed (206) -- (262) --
Capital shares outstanding, end of period 2,756 1,291 1,305 75,089
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
(b) Including undistributed (accumulated) net investment income (loss). $ 115 $ (7) $ 1 $ (489)
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Statements of Changes in Net Assets--Continued
Deutsche Funds, Inc.
For the period from Commencement of Operations through February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche Deutsche
European German Japanese Global European
Mid-Cap Equity Equity Bond Bond
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations--
Net investment income (loss) $ (69) $ (51) $ (29) $ 163 $ 174
Net realized gain (loss) on investments and foreign
currency transactions 234 410 (479) 3 41
Net change in unrealized appreciation/depreciation
on investments and foreign currency 1,038 1,434 (963) 37 21
Net increase (decrease) in net assets resulting
from operations 1,203 1,793 (1,471) 203 236
Capital Share Transactions: Class A
Net proceeds from shares sold 6,756 7,300 600 1,199 3,000
Net cost of shares redeemed -- -- -- -- --
Net increase in net assets resulting from capital
share transactions--Class A 6,756 7,300 600 1,199 3,000
Total increase (decrease) in net assets 7,959 9,093 (871) 1,402 3,236
Net Assets:
Beginning of period 11,111 11,111 11,111 11,111 11,111
End of period(b) $ 19,070 $ 20,204 $ 10,240 $ 12,513 $ 14,347
Capital Shares--Class A
Shares outstanding, beginning of period 889 889 889 889 889
Shares sold 557 580 55 94 237
Shares redeemed -- -- -- -- --
Capital shares outstanding, end of period 1,446 1,469 944 983 1,126
(a) Commencement of operations: 10/17/97 10/17/97 10/20/97 10/15/98 10/17/97
(b) Including undistributed (accumulated) net
investment income (loss). $ (69) $ (51) $ (29) $ 163 $ 174
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Financial Highlights
Deutsche Funds, Inc.
For the period from Commencement of Operations through February 28, 1998 (a)
(unaudited)
<TABLE>
<CAPTION>
Selected data for a Class A share of common stock outstanding throughout the
period.
Deutsche Deutsche Deutsche Deutsche
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 12.50 $ 12.50 $ 12.50 $12.50
Investment operations:
Net investment income (loss) 0.04 (0.01) -- (0.01)
Net realized and unrealized gain (loss) on investments
and foreign currency 0.93 0.90 (0.81) 1.45
Increase (decrease) from investment operations 0.97 0.89 (0.81) 1.44
Net asset value at end of period $ 13.47 $ 13.39 $ 11.69 $13.94
Total Return (based on net asset value)(c)* 7.76% 7.12% (6.48)% 11.52%
Ratios and Supplemental Data
Net assets, end of period (000's) $ 37 $ 17 $ 15 $ 1,047
Ratios to average net assets
Expenses(b)** 1.60% 1.60% 1.60% 1.50%
Net investment income (loss)(b)** 1.39% (0.13)% 0.02% (0.19)%
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
</TABLE>
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolios' expenses net of expense reimbursments. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income to average net assets would have been as follows:
<TABLE>
<S> <C> <C> <C> <C>
Expenses to average net assets** 659.25% 1,024.42% 1,113.74% 27.64%
Net investment income to average net assets** (656.27)% (1,022.96)% (1,112.10)% (26.34)%
</TABLE>
(c) Total Return based on net asset value, excluding the effect of shareholder
transaction charges, assumes a purchase of common stock at net asset value at
commencement of operations and a sale on the last day of the period, also at
net asset value. During the period, total return would have been lower had
certain expenses not been reimbursed by the Manager.
* Not annualized
** Annualized
The accompanying notes are an integral part of the Financial Statements.
Financial Highlights--Continued
Deutsche Funds, Inc.
For the period from Commencement of Operations through February 28, 1998 (a)
(unaudited)
Selected data for a Class A share of common stock outstanding throughout the
period.
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche Deutsche
European German Japanese Global European
Mid-Cap Equity Equity Bond Bond
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 12.50 $ 12.50 $ 12.50 $ 12.50 $12.50
Investment operations:
Net investment income (loss) (0.05) (0.03) (0.03) 0.17 0.15
Net realized and unrealized gain (loss) on
investments and foreign currency 0.74 1.28 (1.62) 0.06 0.09
Increase (decrease) from investment operations 0.69 1.25 (1.65) 0.23 0.24
Net asset value at end of period $ 13.19 $ 13.75 $ 10.85 $ 12.73 $12.74
Total Return (based on net asset value)(c)* 5.52% 10.00% (13.20)% 1.84% 1.92%
Ratios and Supplemental Data
Net assets, end of period (000's) $ 19 $ 20 $ 10 $ 13 $ 14
Ratios to average net assets
Expenses(b)** 1.60% 1.60% 1.60% 1.30% 1.30%
Net investment income (loss)(b)** (1.40)% (0.99)% (0.82)% 3.85% 3.93%
(a) Commencement of operations: 10/17/97 10/17/97 10/20/97 10/15/97 10/17/97
</TABLE>
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolios' expenses net of expense reimbursments. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income to average net assets would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Expenses to average net assets 992.68% 953.73% 1,370.77% 1,167.16% 1,102.89%
Net investment income to average net assets** (992.47)% (953.13)% (1,369.95)% (1,162.02)% (1,097.66)%
</TABLE>
(c) Total Return based on net asset value, excluding the effect of shareholder
transaction charges, assumes a purchase of common stock at net asset value at
commencement of operations and a sale on the last day of the period, also at
net asset value. During the period, total return would have been lower had
certain expenses not been reimbursed by the Manager. * Not annualized
** Annualized
The accompanying notes are an integral part of the Financial Statements.
Notes to Financial Statements
Deutsche Funds, Inc.
February 28, 1998
Note 1--Organization
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (each a "Fund" and collectively
the "Funds"). The accompanying financial statements and notes thereto relate to
nine of these Funds: Deutsche Top 50 World ("Top 50 World"); Deutsche Top 50
Europe ("Top 50 Europe"); Deutsche Top 50 Asia ("Top 50 Asia"); Deutsche Top 50
US ("Top 50 US"); Deutsche European Mid-Cap Fund ("European Mid-Cap Fund");
Deutsche German Equity Fund ("German Equity Fund") Deutsche Japanese Equity Fund
("Japanese Equity Fund") (collectively, the "Equity Funds"); and Deutsche Global
Bond Fund ("Global Bond Fund") and Deutsche European Bond Fund ("European Bond
Fund") (collectively, the "Bond Funds").
Each of the Funds will seek to achieve their respective investment objective by
investing substantially all of their assets in the corresponding portfolio of
Deutsche Portfolios (the "Portfolio Trust") having substantially the same
investment objective of each of the respective Funds. The Portfolio Trust is an
open-end management investment company and comprises ten portfolios (each a
"Portfolio"). The financial statements of nine of the Portfolios, including
their portfolio of investments, are included elsewhere within this report and
should be read in conjuction with each Fund's financial statements.
The Company has not retained the services of an investment adviser since the
Funds seek to achieve their investment objective by investing all of their
investable assets in their corresponding Portfolio of the Portfolio Trust. Each
Portfolio is managed by Deutsche Fund Management, Inc. ("DFM"), an indirect
subsidiary of Deutsche Bank AG. Federated Services Company serves as
Administrator to the Funds and Federated Shareholder Services Company serves as
transfer agent and dividend disbursing agent to the Funds. Edgewood Services,
Inc. ("Edgewood") serves as distributor to the Funds (the "Distributor").
Each Fund recognizes daily a pro-rata portion of its corresponding Portfolio's
income and expenses, including fees paid to DFM and the amortization of
organization expenses. Each Fund offers two classes of shares to investors,
Class A and Class B. Both Class A Shares and Class B Shares are subject to a
Service Plan and Class B Shares are also subject to a Distribution Plan. Each
Class will bear its respective portion of the expenses under the Service and
Distribution Plans. The Funds commenced operations in October 1997. As of
February 28, 1998, only Class A Shares have been sold to the public.
Note 2--Significant Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies followed by the Funds:
Investment Valuation:
The value of a Fund's investment in the Portfolio included in the accompanying
Statement of Assets and Liabilities reflects the Fund's proportionate beneficial
interest in the net assets of the Portfolio (percentages as of February 28, 1998
are listed below). Valuation of securities by the Portfolio is discussed in Note
2 of the Portfolios' Notes to Financial Statements which are included elsewhere
in this report.
<TABLE>
<CAPTION>
Fund Percentage Portfolio
<S> <C> <C>
Top 50 World 0.40% Top 50 World Portfolio (US Dollar)
Top 50 Europe 0.20% Top 50 Europe Portfolio (US Dollar)
Top 50 Asia 0.05% Top 50 Asia Portfolio (US Dollar
Top 50 US 14.74% Top 50 US Portfolio (US Dollar
European Mid-Cap Fund 0.79% Provesta Portfolio (US Dollar)
German Equity Fund 0.81% Investa Portfolio (US Dollar)
Japanese Equity Fund 0.58% Japanese Equity Portfolio (US Dollar)
Global Bond Fund 0.40% Global Bond Portfolio (US Dollar)
European Bond Fund 0.59% European Bond Portfolio (US Dollar)
</TABLE>
From time to time, the Funds may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investments activities
of these shareholders could have a material impact on the Funds and Portfolios.
Investment Income, Expense, Realized and Unrealized Gains and Losses
The Funds record their proportionate share of the investment income, expense,
realized and unrealized gains and losses recorded by the Portfolio on a daily
basis. The investment income, expense, realized and unrealized gains and losses
are allocated daily to investors of the Portfolio based upon the amount of their
investment in the Portfolio. The Company accounts separately for the assets,
liabilities and operations of each Fund. Expenses attributable to each Fund are
charged directly to the respective Fund, while general Company expenses
attributable to more than one Fund of the Company are allocated among the
respective Funds. The investment income and expenses of each Fund (other than
class specific expenses, realized and unrealized gains and losses are further
allocated to each class of shares based on their relative net asset values of
each Fund.
Federal Income Taxes
Each Fund is treated as a separate entity for federal income tax purposes. It is
the policy of the each Fund to qualify for and elect treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, as amended.
Accordingly, each Fund would not be subject to U.S. federal income taxes to the
extent it distributes substanially all of its taxable income including any net
capital gains for each fiscal year. In addition, by distributing, during each
calendar year, substantially all of its net investment income and capital gains,
each Fund would not be subject to U.S. Federal excise tax.
Distributions to Shareholders
Dividends from net investment income of all Funds are declared and paid at least
annually and, in the case of the Bond Funds, monthly. Capital gains of each
Fund, if any, are distributed at least annually. Dividends and capital gains
distributions are distributed in U.S. dollars. The Funds record all dividend
distributions to shareholders on ex-dividend date. During the period ended
Febuary 28, 1998, the Global Bond Fund and the European Bond Fund did not
distribute monthly dividends.
Deferred Organization Costs
Organization expenses incurred in connection with the organization and initial
registration of the Company were paid initially by DFM and will be reimbursed by
the Funds. Such organization expenses have been deferred and will be amortized
ratably over a period of sixty months from the commencement of operations of the
Funds. The amount paid by each Fund on any redemption by Edgewood (or any
subsequent holder) of such Fund's initial shares will be reduced by the pro-rata
portion of any unamortized organization expenses of the Funds.
Note 3--Significant Agreements and Transactions with Affiliates
The Company has retained the services of Federated Services Company as
Administrator. Under the Administration Agreement, Federated Services Company
will assist in the operations of the Funds subject to the direction and control
of the Board of Directors of the Company. For its services, Federated Services
Company receives a fee from each Fund, which is computed daily and paid
Deutsche Funds, Inc.
monthly, at an annual rate of 0.065% of the average daily net assets of each
Fund up to $500 million and 0.05% of such assets in excess of $500 million for
the Fund's then current fiscal year subject to a minimum of $75,000 for the
first year and $125,000 for the second year.
The Company has entered into a distribution agreement with Edgewood. Edgewood
will serve as principal distributor for shares of each Fund. Pursuant to the
Service and Distribution Plans Class B Shares of the Funds are subject to the
Distribution Plan and Class A Shares and Class B Shares of the Funds are subject
to the Service Plan. Under the Distribution Plan, Class B Shares of each Fund
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 activity that is principally intended to result in the sale of Class B
Shares of the Fund. 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.
Federated Shareholder Services Company serves as the transfer agent and dividend
disbursing agent for each Fund. Federated Services Company and Federated
Shareholder Services Company are both affiliated with Edgewood Services Inc. IBT
Fund Services (Canada) Inc. will provide fund accounting services to the Funds.
Expense Reimbursements
DFM has voluntarily 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 pro-rata portion of
expenses of the corresponding Portfolio), at not more than 1.60% and 1.30% of
the average daily net assets of Class A Shares of the Equity Funds, and the Bond
Funds, respectively, with the exception of Deutsche Top 50 US for which DFM has
voluntarily agreed to maintain its expenses at 1.50% of average daily net assets
for Class A.
Portfolio of Investments
Top 50 World Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------- ------------------------- --------
<S> <C> <C>
Common Stocks--93.9%
- -------------------------------------------
France--7.2%
- -------------------------------------------
1,800 Axa-UAP $174,332
------------------------
1,400 Elf-Aquitaine 159,533
------------------------
310 L'OREAL 139,771
------------------------
410 LVMH Co. 82,519
------------------------
800 Total SA-B shares 87,873
------------------------ -------
Total 644,028
------------------------ -------
Germany--6.4%
- -------------------------------------------
3,800 Bayer AG 160,267
------------------------
2,400 Daimler-Benz AG 196,620
------------------------
1,000 Hoechst AG 38,757
------------------------
1,600 Schering AG 179,861
------------------------ -------
Total 575,505
------------------------ -------
Hong Kong--1.0%
- -------------------------------------------
3,200 HSBC Holdings Plc 92,580
------------------------ -------
Italy--1.0%
- -------------------------------------------
16,000 ENI SpA 93,716
------------------------ -------
Japan--5.0%
- -------------------------------------------
5,300 Canon, Inc. 121,467
------------------------
18,000 Fujitsu Ltd. 202,696
------------------------
1,400 Sony Corp. 126,566
------------------------ -------
Total 450,729
------------------------ -------
Netherlands--5.0%
- -------------------------------------------
7,900 Elsevier 148,820
------------------------
2,700 Royal Dutch Petroleum Co. 147,831
------------------------
2,300 Unilever NV 148,213
------------------------ -------
Total 444,864
------------------------ -------
Singapore--3.2%
- -------------------------------------------
39,100 Singapore Airlines Ltd. 289,540
------------------------ -------
Switzerland--5.9%
- -------------------------------------------
90 Nestle 157,776
------------------------
</TABLE>
Top 50 World Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------- ------------------------------------ --------
<S> <C> <C>
Common Stocks--continued
- ----------------------------------------------------
Switzerland--continued
- ----------------------------------------------------
74 Novartis AG $135,128
------------------------------------
20 Roche Holding AG 234,379
------------------------------------ -------
Total 527,283
------------------------------------ -------
United Kingdom--4.4%
- ----------------------------------------------------
4,661 British Petroleum Co. Plc 64,180
------------------------------------
5,700 Glaxo Wellcome Plc 162,371
------------------------------------
17,073 Reuters Group Plc 171,876
------------------------------------ -------
Total 398,427
------------------------------------ -------
United States--54.8%
- ----------------------------------------------------
4,400 Abbott Laboratories 329,175
------------------------------------
1,500 Bristol-Myers Squibb Co. 150,281
------------------------------------
800 Chevron Corp. 64,900
------------------------------------
4,950 Cisco Systems, Inc. 326,081
------------------------------------
2,500 Citicorp 331,250
------------------------------------
3,800 Colgate-Palmolive Co. 308,513
------------------------------------
2,900 Eastman Kodak Co. 190,313
------------------------------------
900 Exxon Corp. 57,488
------------------------------------
2,200 Gillette Co. 237,325
------------------------------------
4,600 Intel Corp. 412,562
------------------------------------
1,500 International Business Machines Corp. 156,656
------------------------------------
900 Lucent Technologies, Inc. 97,538
------------------------------------
3,000 McDonald's Corp. 164,250
------------------------------------
6,300 Medtronic, Inc. 334,688
------------------------------------
1,300 Merck & Co., Inc. 165,831
------------------------------------
3,300 Microsoft Corp. 279,675
------------------------------------
2,000 Mobil Corp. 144,875
------------------------------------
1,500 Monsanto Co. 76,313
------------------------------------
6,500 Philip Morris Co., Inc. 282,344
------------------------------------
2,000 Schlumberger Ltd. 150,750
------------------------------------
1,200 Texaco, Inc. 66,975
------------------------------------
3,600 The Boeing Co. 195,300
------------------------------------
2,700 The Coca-Cola Co. 185,456
------------------------------------
1,700 The Procter & Gamble Co. 144,394
------------------------------------
</TABLE>
Top 50 World Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
-------------- ------------------------------------------ ----------
<S> <C> <C>
Common Stocks--continued
- -----------------------------------------------------------
United States--continued
- -----------------------------------------------------------
500 The Walt Disney Co. $ 55,969
------------------------------------------ ---------
Total 4,908,902
------------------------------------------ ---------
Total Common Stocks (Cost $7,820,378) 8,425,574
------------------------------------------
Preferred Stocks--1.1%
- -----------------------------------------------------------
Germany--1.1%
- -----------------------------------------------------------
250 SAP AG 103,096
------------------------------------------ ---------
Total Preferred Stocks (Cost $88,019) 103,096
------------------------------------------ ---------
Total Investments--95.0% (Cost--$7,908,397) 8,528,670
------------------------------------------
Other Assets in excess of liabilities--5.0% 444,546
------------------------------------------ ---------
Total Net Assets--100.0% $8,973,216
------------------------------------------
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Portfolio of Investments
Top 50 Europe Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------- ---------------------------------------- --------
<S> <C> <C>
Common Stocks--88.8%
- ----------------------------------------------------------
Austria--2.7%
- ----------------------------------------------------------
3,000 Bank Austria AG $204,178
---------------------------------------- -------
Denmark--1.9%
- ----------------------------------------------------------
1,870 Coloplast AS B 147,421
---------------------------------------- -------
France--10.8%
- ----------------------------------------------------------
1,550 Axa-UAP 150,118
----------------------------------------
70 Carrefour Supermarche SA 42,059
----------------------------------------
1,100 Compagnie Generale des Eaux 173,279
----------------------------------------
1,300 Elf-Aquitaine 148,138
----------------------------------------
180 L'Air Liquide 29,124
----------------------------------------
40 Rexel SA 13,484
----------------------------------------
1,200 Schneider SA 74,784
----------------------------------------
980 Synthelabo 136,973
----------------------------------------
530 Total SA-B shares 58,216
---------------------------------------- -------
Total 826,175
---------------------------------------- -------
Germany--39.7%
- ----------------------------------------------------------
3,002 Altana AG 239,993
----------------------------------------
2,582 BASF AG 94,022
----------------------------------------
4,261 Bayer AG 179,709
----------------------------------------
70 Buderus AG 31,568
----------------------------------------
1,013 Deutsche Pfandbrief-und Hypothekenbank AG 76,791
----------------------------------------
1,436 Duerr AG 48,293
----------------------------------------
1,872 Fresenius Medical Care AG 131,484
----------------------------------------
4,265 Gehe AG 225,730
----------------------------------------
9,702 Hoechst AG 376,024
----------------------------------------
454 Mannesmann AG 272,823
----------------------------------------
559 Rhoen-Klinikum AG 57,014
----------------------------------------
1,174 SAP AG 446,597
----------------------------------------
1,767 Schering AG 198,633
----------------------------------------
1,708 SGL Carbon AG 202,453
----------------------------------------
3,993 Siemens AG 245,786
----------------------------------------
</TABLE>
Top 50 Europe Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------- --------------------------------------------- ----------
<S> <C> <C>
Common Stocks--continued
- -------------------------------------------------------------
Germany--continued
- -------------------------------------------------------------
3,162 Veba AG $ 212,241
--------------------------------------------- ---------
Total 3,039,161
--------------------------------------------- ---------
Italy--1.9%
- -------------------------------------------------------------
24,900 ENI SpA 145,846
--------------------------------------------- ---------
Netherlands--6.8%
- -------------------------------------------------------------
6,620 Elsevier 124,706
---------------------------------------------
2,720 International Nederlanden Groep 144,134
---------------------------------------------
1,465 Koninklijke Ahold NV 44,873
---------------------------------------------
1,206 Unilever NV 77,715
---------------------------------------------
840 Wolters Kluwer NV 129,920
--------------------------------------------- ---------
Total 521,348
--------------------------------------------- ---------
Norway--1.6%
- -------------------------------------------------------------
4,800 Tomra Systems ASA 120,044
--------------------------------------------- ---------
Sweden--6.8%
- -------------------------------------------------------------
3,980 AGA AB-A 54,735
---------------------------------------------
1,660 AGA AB-B 20,963
---------------------------------------------
7,340 Astra AB-A 148,213
---------------------------------------------
6,230 Getinge Indutrier AB-B 111,388
---------------------------------------------
1,630 Hoganas AB-B 54,007
---------------------------------------------
1,460 Securitas AB-B 44,267
---------------------------------------------
1,900 Telefonaktiebolaget LM Ericsson 86,472
--------------------------------------------- ---------
Total 520,045
--------------------------------------------- ---------
Switzerland--10.5%
- -------------------------------------------------------------
780 Credit Suisse Group 140,996
---------------------------------------------
105 Novartis AG 191,736
---------------------------------------------
33 Roche Holding AG 386,726
---------------------------------------------
41 Schweizerische Rueckversicherungs-Gesellschaft 86,503
--------------------------------------------- ---------
Total 805,961
--------------------------------------------- ---------
United Kingdom--6.1%
- -------------------------------------------------------------
4,000 British Airport Authority Plc 37,404
---------------------------------------------
6,200 Lloyds TSB Group Plc 93,343
---------------------------------------------
22,900 Rentokil Initial Plc 113,153
---------------------------------------------
4,600 Reuters Group Plc 46,309
---------------------------------------------
</TABLE>
Top 50 Europe Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------ ------------------------------------------ ----------
<S> <C> <C>
Common Stocks--continued
- ---------------------------------------------------------
United Kingdom--continued
- ---------------------------------------------------------
8,600 Siebe Plc $ 177,948
------------------------------------------ ---------
Total 468,157
------------------------------------------ ---------
Total Common Stocks (Cost -- $6,321,358) 6,798,336
------------------------------------------ ---------
Preferred Stocks--5.0%
- ---------------------------------------------------------
Germany
- ---------------------------------------------------------
1,125 Fresenius AG 226,383
------------------------------------------
196 Rhoen-Klinikum AG 19,775
------------------------------------------
336 SAP AG 138,560
------------------------------------------ ---------
Total 384,718
------------------------------------------ ---------
Total Preferred Stocks (Cost--$331,554) 384,718
------------------------------------------ ---------
Total Investments--93.8% (Cost--$6,652,912) 7,183,054
------------------------------------------
Other Assets in excess of liabilities--6.2% 476,946
------------------------------------------ ---------
Total Net Assets--100.0% $7,660,000
------------------------------------------
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Portfolio of Investments
Top 50 Asia Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------- ----------------------------------------- ----------
<S> <C> <C>
Common Stocks--98.6%
- -------------------------------------------------------------
Australia--2.6%
- -------------------------------------------------------------
18,000 Amatil Ltd. Coca Cola $ 154,483
-----------------------------------------
36,000 Australia & New Zealand Banking Group Ltd. 246,684
-----------------------------------------
18,000 Broken Hill Proprietary Co., Ltd. 177,075
-----------------------------------------
30,000 Woodside Petroleum Ltd. 183,996
----------------------------------------- ---------
Total 762,238
----------------------------------------- ---------
Hong Kong--17.5%
- -------------------------------------------------------------
1,200,000 Cathay Pacific Airways 1,030,675
-----------------------------------------
120,000 Cheung Kong Holdings Ltd. 840,814
-----------------------------------------
300,000 Cheung Kong Infrastructure Holdings 924,120
-----------------------------------------
36,000 HSBC Holdings Plc 1,041,524
-----------------------------------------
180,000 Sun Hung Kai Properties Ltd. 1,348,402
----------------------------------------- ---------
Total 5,185,535
----------------------------------------- ---------
India--1.9%
- -------------------------------------------------------------
20,000 Dr. Reddy's Laboratories Ltd.--GDR 220,000
-----------------------------------------
12,000 ITC Ltd.--GDR 333,000
----------------------------------------- ---------
Total 553,000
----------------------------------------- ---------
Indonesia--5.5%
- -------------------------------------------------------------
600,000 HM Sampoerna 341,899
-----------------------------------------
555,000 PT Gudang Garam 685,223
-----------------------------------------
1,550,000 PT Telekomunikasi Indonesia 606,145
----------------------------------------- ---------
Total 1,633,267
----------------------------------------- ---------
Japan--19.5%
- -------------------------------------------------------------
19,000 Bridgestone Corp. 438,462
-----------------------------------------
8,000 Canon, Inc. 183,347
-----------------------------------------
90,000 Fujitsu Ltd. 1,013,481
-----------------------------------------
53,000 Minebea Co., Ltd. 588,376
-----------------------------------------
60 Nippon Telephone & Telegraph 551,943
-----------------------------------------
70,000 Nomura Securities Co., Ltd. 965,900
-----------------------------------------
4,000 Sankyo Co., Ltd. 107,534
-----------------------------------------
26,000 Shiseido Co. 327,835
-----------------------------------------
</TABLE>
Top 50 Asia Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------- ------------------------------ ----------
<S> <C> <C>
Common Stocks--continued
- ------------------------------------------------
Japan--continued
- ------------------------------------------------
13,000 Sony Corp. $1,175,236
------------------------------
18,000 TERUMO Corp. 254,084
------------------------------
6,000 Toyota Motor Co. 166,059
------------------------------ ---------
Total 5,772,257
------------------------------ ---------
Korea--9.2%
- ------------------------------------------------
8,000 Korea Electric Power Corp.--ADR 85,500
------------------------------
56,780 Korea Electric Power Corp. 757,994
------------------------------
10,000 LG Electronics--GDR 30,000
------------------------------
40,830 LG Electronics 615,029
------------------------------
6,390 Pohang Iron & Steel Co., Ltd. 304,043
------------------------------
16,000 Samsung Display Devices Co. 930,802
------------------------------ ---------
Total 2,723,368
------------------------------ ---------
Malaysia--4.9%
- ------------------------------------------------
149,000 Malaysian Oxygen Bhd. 427,442
------------------------------
620,000 Nylex (Malaysia) Bhd. 332,233
------------------------------
193,400 O.Y.L. Industries Bhd. 690,901
------------------------------ ---------
Total 1,450,576
------------------------------ ---------
Philippines--5.0%
- ------------------------------------------------
950,000 Ayala Corp. 447,832
------------------------------
233,000 Benpres Holdings Corp. 757,250
------------------------------
160,000 San Miquel Corp. B 265,493
------------------------------ ---------
Total 1,470,575
------------------------------ ---------
Singapore--20.4%
- ------------------------------------------------
160,000 Cerebos Pacific Ltd. 440,358
------------------------------
200,000 City Developments 907,127
------------------------------
680,000 DBS Land Ltd. 1,053,255
------------------------------
114,000 Development Bank of Singapore 893,428
------------------------------
110,000 Fraser & Neave Ltd. 481,950
------------------------------
270,000 GP Batteries International Ltd. 874,730
------------------------------
200,000 Singapore Airlines Ltd. 1,481,024
------------------------------ ---------
Total 6,131,872
------------------------------ ---------
Taiwan--9.1%
- ------------------------------------------------
50,000 Acer, Inc.--GDR 587,500
------------------------------
20,000 Asustek Computer Inc.--GDR 490,000
------------------------------
</TABLE>
Top 50 Asia Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------- ---------------------------------------- -----------
<S> <C> <C>
Common Stocks--continued
- ----------------------------------------------------------
Taiwan--continued
- ----------------------------------------------------------
2,200 China Steel Corp.--GDR--144A $ 30,195
----------------------------------------
3,000 President Enterprises Corp.--GDR 36,000
----------------------------------------
53,800 Taiwan Semiconductor Manufacturing Co.,
Ltd.--ADR 1,543,388
----------------------------------------- ----------
Total 2,687,083
----------------------------------------- ----------
United Kingdom--3.0%
- ----------------------------------------------------------
61,000 Standard Chartered Plc. 880,725
----------------------------------------- ----------
TOTAL COMMON STOCKS (COST--$26,745,221) 29,250,496
- ---------------------------------------------------------- ----------
Convertible Preferred Stocks--0.5%
- ----------------------------------------------------------
Australia
- ----------------------------------------------------------
5,000 National Australia Bank Ltd. 142,813
----------------------------------------- ----------
Total Convertible Preferred Stocks
(Cost--$138,425) 142,813
----------------------------------------- ----------
Total Investments--99.1%
(Cost--$26,883,646) 29,393,309
-----------------------------------------
Other Assets in excess of
liabilities--0.9% 259,791
------------------------------------------ ----------
Total Net Assets--100.0% $29,653,100
------------------------------------------ -----------
</TABLE>
Notes to the Portfolio of Investments:
ADR--American Depositary Receipt
GDR--Global Depositary Receipt
144A--Securities restricted for resale to qualified Institutional Buyers.
The accompanying notes are an interal part of the Financial Statements.
Portfolio of Investments
Top 50 US Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------ ----------------------------- --------
<S> <C> <C>
Common Stocks--77.3%
- ------------------------------------------------
Aerospace & Defense--1.3%
- ------------------------------------------------
1,750 The Boeing Co. $ 94,938
---------------------------- -------
Banking--3.9%
- ------------------------------------------------
960 Citicorp 127,200
----------------------------
1,120 Household International, Inc. 145,460
---------------------------- -------
Total 272,660
---------------------------- -------
Beverages, Food & Tobacco--5.3%
- ------------------------------------------------
1,620 Campbell Soup Co. 94,061
----------------------------
2,500 PepsiCo, Inc. 91,406
----------------------------
2,480 Philip Morris Co., Inc. 107,725
----------------------------
1,180 The Coca-Cola Co. 81,051
---------------------------- -------
Total 374,243
---------------------------- -------
Building Materials--2.5%
- ------------------------------------------------
2,740 Home Depot, Inc. 174,846
---------------------------- -------
Chemicals--1.4%
- ------------------------------------------------
1,950 Monsanto Co. 99,206
---------------------------- -------
Commercial Services--3.4%
- ------------------------------------------------
3,700 Cendant Corp. 138,750
----------------------------
2,640 Service Corp. International 99,990
---------------------------- -------
Total 238,740
---------------------------- -------
Communications--1.9%
- ------------------------------------------------
1,220 Lucent Technologies, Inc. 132,218
---------------------------- -------
Computer Software & Processing--6.7%
- ------------------------------------------------
2,750 Cognizant Corp. 137,328
----------------------------
1,750 First Data Corp. 59,500
----------------------------
1,970 HBO & Co. 106,626
----------------------------
2,000 Microsoft Corp. 169,500
---------------------------- -------
Total 472,954
---------------------------- -------
Computers & Information--6.6%
- ------------------------------------------------
1,400 Cisco Systems, Inc. 92,225
----------------------------
3,430 EMC Corp. 131,198
----------------------------
</TABLE>
Top 50 US Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------ ------------------------------------ --------
<S> <C> <C>
Common Stocks--continued
- -------------------------------------------------------
Computers & Information--continued
- -------------------------------------------------------
1,820 Hewlett-Packard Co. $121,940
------------------------------------
2,320 Symbol Technologies, Inc. 118,465
------------------------------------ -------
Total 463,828
------------------------------------ -------
Cosmetics & Personal Care--4.5%
- -------------------------------------------------------
1,780 Estee Lauder Co. Class A 104,130
------------------------------------
1,060 Gillette Co. 114,348
------------------------------------
1,150 The Procter & Gamble Co. 97,678
------------------------------------ -------
Total 316,156
------------------------------------ -------
Electric Utilities--1.4%
- -------------------------------------------------------
2,300 AES Corp. 101,200
------------------------------------ -------
Electrical Equipment--4.0%
- -------------------------------------------------------
1,670 General Electric Co. 129,843
------------------------------------
1,710 Xerox Corp. 151,656
------------------------------------ -------
Total 281,499
------------------------------------ -------
Electronics--1.1%
- -------------------------------------------------------
880 Intel Corp. 78,925
------------------------------------ -------
Entertainment & Leisure--1.7%
- -------------------------------------------------------
1,100 The Walt Disney Co. 123,131
------------------------------------ -------
Financial Services--1.4%
- -------------------------------------------------------
1,590 Federal National Mortgage Association 101,462
------------------------------------ -------
Health Care Providers--0.9%
- -------------------------------------------------------
2,230 HEALTHSOUTH Corp. 60,210
------------------------------------ -------
Heavy Machinery--0.7%
- -------------------------------------------------------
1,400 U.S. Filter Corp. 47,513
------------------------------------ -------
Household Products--0.7%
- -------------------------------------------------------
1,250 Corning, Inc. 50,781
------------------------------------ -------
Insurance--8.3%
- -------------------------------------------------------
1,170 American International Group, Inc. 140,619
------------------------------------
1,200 Chubb Corp. 95,775
------------------------------------
425 General Re Corp. 90,525
------------------------------------
2,620 Hartford Life, Inc. Class A 112,824
------------------------------------
1,600 Marsh & McLennan Co., Inc. 138,700
------------------------------------ -------
Total 578,443
------------------------------------ -------
</TABLE>
Top 50 US Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
-------------- ------------------------------------------- ----------
<S> <C> <C>
Common Stocks--continued
- --------------------------------------------------------------
Medical Supplies--4.4%
- --------------------------------------------------------------
1,320 Johnson & Johnson $ 99,660
-------------------------------------------
1,910 Medtronic, Inc. 101,469
-------------------------------------------
1,470 The Perkin-Elmer Corp. 107,586
------------------------------------------- ---------
Total 308,715
------------------------------------------- ---------
Metals--1.4%
- --------------------------------------------------------------
1,300 Aluminum Company of America 95,388
------------------------------------------- ---------
Oil & Gas--3.2%
- --------------------------------------------------------------
4,510 Newpark Resources, Inc. 86,818
-------------------------------------------
1,870 Schlumberger Ltd 140,951
------------------------------------------- ---------
Total 227,769
------------------------------------------- ---------
Pharmaceuticals--4.9%
- --------------------------------------------------------------
1,180 Abbott Laboratories 88,279
-------------------------------------------
1,140 Merck & Co., Inc. 145,421
-------------------------------------------
1,250 Pfizer, Inc. 110,625
------------------------------------------- ---------
Total 344,325
------------------------------------------- ---------
Retailers--4.6%
- --------------------------------------------------------------
3,200 AutoZone, Inc. 96,800
-------------------------------------------
5,680 Staples, Inc. 119,990
-------------------------------------------
2,370 Wal-Mart Stores, Inc. 109,761
------------------------------------------- ---------
Total 326,551
------------------------------------------- ---------
Telephone Systems--1.1%
- --------------------------------------------------------------
1,270 AT & T Corp. 77,308
------------------------------------------- ---------
Total Investments--77.3% (Cost--$4,886,143) 5,443,009
-------------------------------------------
Other Assets in excess of liabilities--22.7% 1,597,809
------------------------------------------- ---------
Total Net Assets--100.0% $7,040,818
-------------------------------------------
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Portfolio of Investments
Provesta Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------- ---------------------------------------- --------
<S> <C> <C>
Common Stocks--81.0%
- ----------------------------------------------------------
France--4.5%
- ----------------------------------------------------------
51 Banque Nationale de Paris $ 3,086
----------------------------------------
1,200 Business Objects SA--ADR 16,950
----------------------------------------
93 Cap Gemini SA . 10,705
----------------------------------------
113 Compagnie Financiere de Paribas 10,758
----------------------------------------
280 Groupe des Assurances Nationales 6,902
----------------------------------------
156 Sanofi SA 17,700
----------------------------------------
629 Schneider SA 39,199
---------------------------------------- -------
Total 105,300
---------------------------------------- -------
Germany--65.8%
- ----------------------------------------------------------
121 Adidas AG 18,945
----------------------------------------
38 ADOLF AHLERS AG 8,694
----------------------------------------
153 Aixtron AG 29,481
----------------------------------------
823 Altana AG 65,791
----------------------------------------
75 AVA Allgemeine Handels der Verbraucher 24,809
----------------------------------------
7 Axa Colonia Konzern AG 853
----------------------------------------
58 A. Friedrich Flender AG 8,634
----------------------------------------
200 Bankgesellschaft Berlin AG 4,251
----------------------------------------
864 Bayerische Hypotheken-und Wechsel-Bank AG 40,965
----------------------------------------
1,387 Bayerische Vereinsbank AG 86,561
----------------------------------------
28 BDAG Balcke-Duerr AG 3,844
----------------------------------------
149 Beiersdorf AG 7,048
----------------------------------------
465 BERLINER ELEKTRO Holding AG 9,101
----------------------------------------
529 Berliner Kraft-und Licht (Bewag) AG 23,332
----------------------------------------
437 BERU AG 8,673
----------------------------------------
578 BHF-Bank AG 16,507
----------------------------------------
23 CeWe Color Holding AG 5,199
----------------------------------------
1,926 Continental AG 46,296
----------------------------------------
33 DBV-Winterthur Holding AG 14,646
----------------------------------------
520 Degussa AG 26,948
----------------------------------------
352 Deutsche Babcock AG 19,600
----------------------------------------
399 Deutsche Pfandbrief-und Hypothekenbank AG 30,246
----------------------------------------
</TABLE>
Provesta Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------ ------------------------------------- -------
<S> <C> <C>
Common Stocks--continued
- ----------------------------------------------------
Germany--continued
- ----------------------------------------------------
444 Duerr AG $14,932
-------------------------------------
146 Escada AG 20,123
-------------------------------------
2,603 FAG Kugelfischer Georg Schaefer AG 35,733
-------------------------------------
99 Felten & Guilleaume Energietechnik AG 10,097
-------------------------------------
67 Fresenius AG 12,559
-------------------------------------
538 Fresenius Medical Care AG 37,788
-------------------------------------
340 Fried Krupp AG Hoesch-Krupp 61,857
-------------------------------------
59 Fuchs Petrolub AG Oel + Chemie 6,652
-------------------------------------
1,278 Gehe AG 67,640
-------------------------------------
555 Gerresheimer Glas AG 7,864
-------------------------------------
373 Heidelberger Druckmaschinen AG 21,551
-------------------------------------
267 Henkel KGaA 16,398
-------------------------------------
182 Hornbach Baumarkt AG 5,669
-------------------------------------
488 Hucke AG 10,762
-------------------------------------
102 IWKA AG 22,606
-------------------------------------
20 Karstadt AG 7,134
-------------------------------------
484 Kiekert AG 21,000
-------------------------------------
458 Kloeckner-Werke AG 31,487
-------------------------------------
86 KM Europa Metal AG--New 10,431
-------------------------------------
136 KM Europa Metal AG 16,833
-------------------------------------
100 LEONISCHE DRAHTWERKE AG 33,079
-------------------------------------
23 MAN AG 6,923
-------------------------------------
50 Mannheimer Versicherung AG 37,076
-------------------------------------
2,123 Metallgesellschaft AG 42,955
-------------------------------------
520 Metro AG 23,651
-------------------------------------
4 Nuernberger Beteiligungs AG 5,844
-------------------------------------
12 Nuernberger Beteiligungs AG B 18,127
-------------------------------------
1,106 Phoenix AG 23,171
-------------------------------------
68 Plettac AG 9,222
-------------------------------------
477 Praktiker Bau-und Heimwerkermaerkte AG 5,812
-------------------------------------
96 Rhoen-Klinikum AG 9,791
-------------------------------------
</TABLE>
Provesta Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
-------------- ---------------------------------------- ----------
<S> <C> <C>
Common Stocks--continued
- ---------------------------------------------------------
Germany--continued
- ---------------------------------------------------------
203 SAP AG $ 77,222
----------------------------------------
609 Schering AG 68,459
----------------------------------------
264 Schlott AG 5,007
----------------------------------------
470 SGL Carbon AG 55,710
----------------------------------------
207 Singulus Technologies AG 15,292
----------------------------------------
1,226 SKW Trostberg AG 41,873
----------------------------------------
33 Springer (Axel) Verlag AG 27,290
----------------------------------------
51 Varta AG 8,070
----------------------------------------
117 Verseidag AG 12,836
----------------------------------------
50 Wella AG 34,733
----------------------------------------
26 WMF-Wurttembergische Metallwarenfabrik AG 4,014
----------------------------------------
193 Wuensche AG 21,813
---------------------------------------- ---------
Total 1,527,510
---------------------------------------- ---------
Ireland--0.1%
- ---------------------------------------------------------
25 CBT Group Plc--ADR 2,294
---------------------------------------- ---------
Italy--1.3%
- ---------------------------------------------------------
21,400 Banca di Roma 29,549
---------------------------------------- ---------
Netherlands--6.6%
- ---------------------------------------------------------
436 Benckiser NV B (Germany) 18,989
----------------------------------------
556 Benckiser NV B (Netherlands) 23,886
----------------------------------------
700 Getronics NV 27,846
----------------------------------------
566 Nutreco Holding NV 15,315
----------------------------------------
652 Qiagen NV 31,452
----------------------------------------
569 Unilever NV 36,667
---------------------------------------- ---------
Total 154,155
---------------------------------------- ---------
Spain--0.7%
- ---------------------------------------------------------
225 Argentaria SA 16,770
---------------------------------------- ---------
Switzerland--2.0%
- ---------------------------------------------------------
7 Baloise Holdings Ltd. 15,256
----------------------------------------
20 Kuehne & Nagel International AG 11,908
----------------------------------------
1 Lindt & Spruengli AG 19,441
---------------------------------------- ---------
Total 46,605
---------------------------------------- ---------
</TABLE>
Provesta Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------ ------------------------------------------ ----------
<S> <C> <C>
Common Stocks--continued
- ---------------------------------------------------------
United Kingdom--0.0%
- ---------------------------------------------------------
250 Cortecs Plc $ 704
------------------------------------------ ---------
Total Common Stocks (Cost -- $1,809,097) 1,882,887
------------------------------------------ ---------
Preferred Stocks--21.7%
- ---------------------------------------------------------
Germany
- ---------------------------------------------------------
150 Axa Colonia Konzern AG 17,036
------------------------------------------
96 BERLINER ELEKTRO Holding AG 1,683
------------------------------------------
319 Draegerwerk AG 6,578
------------------------------------------
63 Dyckerhoff AG 17,297
------------------------------------------
11 EDDING AG 3,226
------------------------------------------
325 Fresenius AG 65,400
------------------------------------------
67 Fuchs Petrolub AG Oel + Chemie 7,351
------------------------------------------
141 Gerry Weber International AG . 3,654
------------------------------------------
218 Hans Einhell AG 3,413
------------------------------------------
93 JADO Design Armatur & Beschlag AG 423
------------------------------------------
35 Jagenberg AG 2,701
------------------------------------------
161 Jungheinrich AG 25,297
------------------------------------------
22 Krones AG Hermann Kronseder Maschinenfabrik 6,853
------------------------------------------
31 MAN AG 7,260
------------------------------------------
49 Marschollek, Lautenschlaeger und Partner AG 16,074
------------------------------------------
1,267 Metro AG 43,657
------------------------------------------
26 Porsche AG 46,127
------------------------------------------
1,292 Prosieben Media AG 64,819
------------------------------------------
150 Rhoen-Klinikum AG 15,134
------------------------------------------
164 SAP AG 67,631
------------------------------------------
492 Sixt AG 47,604
------------------------------------------
30 Sto AG 10,767
------------------------------------------
23 Wella AG 17,245
------------------------------------------
47 WMF-Wurttembergische Metallwarenfabrik AG 6,633
------------------------------------------ ---------
Total 503,863
------------------------------------------ ---------
Total Preferred Stocks (Cost -- $468,185) 503,863
------------------------------------------ ---------
</TABLE>
Provesta Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------- -------------------------------------------- ----------
<S> <C> <C>
Warrants--1.0%
- --------------------------------------------------------------
Germany
- --------------------------------------------------------------
21 Continental AG (Exp. Date: 7/6/00) $ 2,865
--------------------------------------------
130 Allianz AG (Exp. Date: 6/30/99) 20,824
-------------------------------------------- ---------
Total 23,689
-------------------------------------------- ---------
Total Warrants (Cost--$24,316) 23,689
-------------------------------------------- ---------
Total Investments--103.7% (Cost--$2,301,580) 2,410,439
--------------------------------------------
Liabilities in excess of other assets--(3.7%) (85,758)
-------------------------------------------- ---------
Total Net Assets--100.0% $2,324,681
-------------------------------------------- ---------
</TABLE>
Notes to the Portfolio of Investments:
ADR--American Depository Receipt
The accompanying notes are an integral part of the Financial Statements.
Portfolio of Investments
Investa Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------- ---------------------------------------- --------
<S> <C> <C>
Common Stocks--82.3%
- ----------------------------------------------------------
Automotive--12.3%
- ----------------------------------------------------------
34 Bayerische Motoren Werke AG $ 34,301
----------------------------------------
1,394 Continental AG 33,508
----------------------------------------
2,248 Daimler-Benz AG 184,168
----------------------------------------
70 Volkswagen AG 46,098
---------------------------------------- -------
Total 298,075
---------------------------------------- -------
Banking--17.3%
- ----------------------------------------------------------
2,200 Bayerische Hypotheken-und Wechsel-Bank AG 104,309
----------------------------------------
1,800 Bayerische Vereinsbank AG 112,336
----------------------------------------
383 BHF-Bank AG 10,938
----------------------------------------
2,300 Commerzbank AG 83,309
----------------------------------------
2,350 Dresdner Bank AG 106,627
---------------------------------------- -------
Total 417,519
---------------------------------------- -------
Chemicals--14.5%
- ----------------------------------------------------------
1,530 BASF AG 55,714
----------------------------------------
2,435 Bayer AG 102,697
----------------------------------------
589 Degussa AG 30,524
----------------------------------------
4,140 Hoechst AG 160,455
---------------------------------------- -------
Total 349,390
---------------------------------------- -------
Communications--2.9%
- ----------------------------------------------------------
3,478 Deutsche Telekom AG 70,275
---------------------------------------- -------
Computer Software & Processing--4.1%
- ----------------------------------------------------------
260 SAP AG 98,906
---------------------------------------- -------
Electric Utilities--2.9%
- ----------------------------------------------------------
1,050 Veba AG 70,479
---------------------------------------- -------
Electrical Equipment--5.8%
- ----------------------------------------------------------
2,295 Siemens AG 141,267
---------------------------------------- -------
Heavy Construction--0.5%
- ----------------------------------------------------------
369 Hochtief AG 12,816
---------------------------------------- -------
Household Products--1.3%
- ----------------------------------------------------------
510 Henkel KGaA 31,322
---------------------------------------- -------
</TABLE>
Investa Portfolio (US Dollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------- -------------------------------------------- ----------
<S> <C> <C>
Common Stocks--continued
- ---------------------------------------------------------------
Industrial--Diversified--9.6%
- ---------------------------------------------------------------
63 Linde AG $ 41,714
--------------------------------------------
193 Mannesmann AG 115,980
--------------------------------------------
113 Preussag AG 36,663
--------------------------------------------
166 Thyssen AG 36,561
-------------------------------------------- ---------
Total 230,918
-------------------------------------------- ---------
Insurance--5.2%
- ---------------------------------------------------------------
60 Allianz AG 18,905
--------------------------------------------
237 Muenchener Rueckversicherungs-Gesellschaft AG 107,534
-------------------------------------------- ---------
Total 126,439
-------------------------------------------- ---------
Oil & Gas--0.6%
- ---------------------------------------------------------------
100 Royal Dutch Petroleum Co. (Netherlands) 5,475
--------------------------------------------
175 Royal Dutch Petroleum Co. (Germany) 9,658
-------------------------------------------- ---------
Total 15,133
-------------------------------------------- ---------
Pharmaceuticals--2.6%
- ---------------------------------------------------------------
552 Schering AG 62,052
-------------------------------------------- ---------
Retailers--2.7%
- ---------------------------------------------------------------
35 Karstadt AG 12,484
--------------------------------------------
1,172 Metro AG 53,307
-------------------------------------------- ---------
Total 65,791
-------------------------------------------- ---------
Total Common Stock (Cost $1,871,069) 1,990,382
-------------------------------------------- ---------
Preferred Stocks--14.0%
- ---------------------------------------------------------------
Automotive--0.8%
- ---------------------------------------------------------------
27 Bayerische Motoren Werke AG 18,458
-------------------------------------------- ---------
Building Materials--0.8%
- ---------------------------------------------------------------
67 Dyckerhoff AG 18,395
-------------------------------------------- ---------
Computer Software & Processing--4.8%
- ---------------------------------------------------------------
280 SAP AG 115,467
-------------------------------------------- ---------
Electric Utilities--4.5%
- ---------------------------------------------------------------
2,327 RWE AG 108,983
-------------------------------------------- ---------
Household Products--0.4%
- ---------------------------------------------------------------
150 Henkel KGaA 9,717
-------------------------------------------- ---------
Industrial--Diversified--1.7%
- ---------------------------------------------------------------
177 MAN AG 41,453
-------------------------------------------- ---------
</TABLE>
Investa Portfolio (US Dollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------- ------------------------------------------- ----------
<S> <C> <C>
Preferred Stocks--Continued
- --------------------------------------------------------------
Retailers--1.0%
- --------------------------------------------------------------
722 Metro AG $ 24,878
------------------------------------------- ---------
Total Preferred Stocks (Cost $291,906) 337,351
------------------------------------------- ---------
Warrants--5.8%
- --------------------------------------------------------------
Automotive--0.4%
- --------------------------------------------------------------
65 Continental AG (Exp. Date: 7/6/00) 8,869
------------------------------------------- ---------
Chemicals--0.3%
- --------------------------------------------------------------
44 BASF Finance Europe (Exp. Date: 4/9/01) 8,248
------------------------------------------- ---------
Electric Utilities--1.6%
- --------------------------------------------------------------
85 Veba International Finance (Exp. Date:
4/6/98) 38,099
------------------------------------------- ---------
Electrical Equipment--0.1%
- --------------------------------------------------------------
14 Siemens AG (Exp. Date: 6/2/98) 3,327
------------------------------------------- ---------
Insurance--3.4%
- --------------------------------------------------------------
45,000 Allianz AG (Exp. Date: 6/30/99) 73,435
-------------------------------------------
10 Muenchener Rueckversicherungs-Gesellschaft
AG (Exp. Date: 3/13/98) 7,911
------------------------------------------- ---------
Total 81,346
------------------------------------------- ---------
Total Warrants (Cost $122,527) 139,889
------------------------------------------- ---------
Total Investments--102.1% (Cost--$2,285,502) 2,467,622
-------------------------------------------
Liabilities in excess of other assets--
(2.1%) (49,977)
------------------------------------------- ---------
Total Net Assets--100.0% $2,417,645
-------------------------------------------
</TABLE>
Notes to the Portfolio of Investments:
The accompanying notes are an integral part of the Financial Statements.
Portfolio of Investments
Japanese Equity Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------- ------------------------------------- --------
<S> <C> <C>
Common Stocks--99.3%
- --------------------------------------------------------
Automotive--4.9%
- --------------------------------------------------------
2,000 Bridgestone Corp. $ 46,154
-------------------------------------
1,000 Honda Motor Co., Ltd. 34,655
------------------------------------- -------
Total 80,809
------------------------------------- -------
Banking--12.4%
- --------------------------------------------------------
20,000 Sakura Bank Ltd. 83,743
-------------------------------------
3,000 Sanwa Bank 29,976
-------------------------------------
5,000 Sumitomo Trust & Banking 35,686
-------------------------------------
4,000 The Bank of Tokyo Mitsubishi 56,780
------------------------------------- -------
Total 206,185
------------------------------------- -------
Beverages, Food & Tobacco--5.5%
- --------------------------------------------------------
4,000 Ajinomoto Co., Inc. 39,655
-------------------------------------
6,000 Kirin Brewery Co., Ltd. 52,339
------------------------------------- -------
Total 91,994
------------------------------------- -------
Chemicals--2.3%
- --------------------------------------------------------
2,000 Dai Nippon Ink & Chemicals, Inc. 6,027
-------------------------------------
5,000 Sumitomo Bakelite Co., Ltd. 32,038
------------------------------------- -------
Total 38,065
------------------------------------- -------
Commercial Services--3.5%
- --------------------------------------------------------
2,000 Dainippon Printing Co., Ltd. 34,100
-------------------------------------
1,100 HIS Co., Ltd. 24,774
------------------------------------- -------
Total 58,874
------------------------------------- -------
Computer Software & Processing--11.2%
- --------------------------------------------------------
1,000 Fuji Soft ABC, Inc. 33,307
-------------------------------------
7,000 Fujitsu Ltd. 78,826
-------------------------------------
1,000 Hitachi Software Engineering Co., Ltd. 26,487
-------------------------------------
1 NTT Data Corp. 48,612
------------------------------------- -------
Total 187,232
------------------------------------- -------
Computers & Information--1.0%
- --------------------------------------------------------
1,000 Diamond Computer Service Co. 15,860
------------------------------------- -------
</TABLE>
Japanese Equity Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------- -------------------------------------------- --------
<S> <C> <C>
Common Stocks--continued
- ----------------------------------------------------------------
Electrical Equipment--7.9%
- ----------------------------------------------------------------
2,000 Matsushita Electric Industries $ 29,183
---------------------------------------------
4,000 Minebea Co., Ltd. 44,409
---------------------------------------------
4,000 Sumitomo Electric Industries 58,366
--------------------------------------------- -------
Total 131,958
--------------------------------------------- -------
Electronics--9.7%
- ----------------------------------------------------------------
5,000 Fujikura Ltd. 35,250
---------------------------------------------
1,000 Sony Corp. 90,404
---------------------------------------------
1,000 Tokyo Electron Ltd. 36,003
--------------------------------------------- -------
Total 161,657
--------------------------------------------- -------
Entertainment & Leisure--1.1%
- ----------------------------------------------------------------
200 Nintendo Corp. Ltd. 18,398
--------------------------------------------- -------
Financial Services--5.3%
- ----------------------------------------------------------------
4,000 Nomura Securities Co., Ltd. 55,194
---------------------------------------------
100 Shohkoh Fund & Co., Ltd. 33,386
--------------------------------------------- -------
Total 88,580
--------------------------------------------- -------
Food Retailers--3.3%
- ----------------------------------------------------------------
1,000 Ito-Yokado Co., Ltd. 54,718
--------------------------------------------- -------
Forest Products & Paper--2.1%
- ----------------------------------------------------------------
1,000 Uni Charm Corp. 35,686
--------------------------------------------- -------
Heavy Construction --1.6%
- ----------------------------------------------------------------
300 SMC Corp. 26,170
--------------------------------------------- -------
Heavy Machinery--0.7%
- ----------------------------------------------------------------
1,000 THK CO., Ltd. 11,895
--------------------------------------------- -------
Home Construcion, Furnishings & Appliances--2.4%
- ----------------------------------------------------------------
5,000 Daiwa House Industry Co., Ltd. 39,175
--------------------------------------------- -------
Industrial--Diversified--2.7%
- ----------------------------------------------------------------
20,000 Ishikawajima-Harima Heavy Industries Co., Ltd. 45,678
--------------------------------------------- -------
Insurance--1.0%
- ----------------------------------------------------------------
3,000 Mitsui Marine & Fire Insurance Co., Ltd. 16,749
--------------------------------------------- -------
Medical Supplies--1.6%
- ----------------------------------------------------------------
1,000 Hoya Corp 26,566
--------------------------------------------- -------
Office Equipment--2.8%
- ----------------------------------------------------------------
2,000 Canon, Inc. 45,837
--------------------------------------------- -------
</TABLE>
Japanese Equity Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------- ------------------------------------------ ----------
<S> <C> <C>
Common Stocks--continued
- -------------------------------------------------------------
Pharmaceuticals--4.9%
- -------------------------------------------------------------
2,000 Sankyo Co., Ltd. $ 53,767
------------------------------------------
2,000 TERUMO Corp. 28,232
------------------------------------------ ---------
Total 81,999
------------------------------------------ ---------
Real Estate--2.6%
- -------------------------------------------------------------
4,000 Mitsui Fudosan Co., Ltd. 43,140
------------------------------------------ ---------
Retailers--3.6%
- -------------------------------------------------------------
2,000 Kao Corp. 27,121
------------------------------------------
2,000 Marui Co., Ltd. 32,831
------------------------------------------ ---------
Total 59,952
------------------------------------------ ---------
Telephone Systems--3.9%
- -------------------------------------------------------------
7 Nippon Telephone & Telegraph 64,393
------------------------------------------ ---------
Textiles, Clothing &Fabrics--1.3%
- -------------------------------------------------------------
4,000 Toray Industries, Inc. 21,570
------------------------------------------ ---------
Total Investments--99.3% (Cost--$1,827,720) 1,653,140
------------------------------------------
Other Assets in excess of liabilities--0.7% 11,231
------------------------------------------ ---------
Total Net Assets--100.0% $1,664,371
------------------------------------------
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
- ------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
- ------------------------------------------------------------------------------
Global Bond Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Market
Face Value
Currency Value (Note 2)
<S> <C> <C> <C>
Corporate Debt-34.3%
Japan-2.7%
Nippon Telephone & Telegraph
JPY 10,000,000 2.500% Due 07/25/07 $ 81,642
Multinational-5.3%
European Investment Bank
DEM 150,000 5.250% Due 04/15/04 84,806
World Bank
JPY 8,000,000 5.250% Due 03/20/02 73,814
Total 158,620
Netherlands-5.9%
Commerzbank Overseas Finance
ITL 120,000,000 10.800% Due 04/14/00 74,927
Telefonica Europe BV (Eurodollar)
USD 100,000 6.375% Due 01/08/03 100,600
Total 175,527
United Kingdom-10.2%
British Telecom Plc (Eurodollar)
USD 100,000 7.000% Due 05/23/07 105,950
Glaxo Wellcome Plc (Eurodollar)
USD 100,000 6.125% Due 01/25/06 99,900
Vodafone Group Plc
GBP 60,000 7.875% Due 11/06/01 101,149
Total 306,999
United States-10.2%
BMW U.S. Capital Corp.
USD 100,000 6.625% Due 03/15/04 101,700
Ford Motor Credit
USD 100,000 6.550% Due 09/10/02 101,130
Global Bond Portfolio (US Dollar)
</TABLE>
<TABLE>
<CAPTION>
Market
Face Value
Currency Value (Note 2)
<S> <C> <C> <C>
Corporate Debt-continued
United States-continued
Philip Morris Co., Inc.
USD 100,000 7.000% Due 07/15/05 $ 101,900
Total 304,730
Total Corporate Debt (Cost -$1,035,542) 1,027,518
Sovereign Debt Obligations-38.3%
Australia-6.2%
Australia Government Bond
AUD 100,000 8.750% Due 01/15/01 73,985
AUD 150,000 7.500% Due 07/15/05 111,690
Total 185,675
Canada-3.3%
Province of Ontario (Yankee)
USD 100,000 6.000% Due 02/21/06 99,200
Denmark-4.1%
Kingdom of Denmark
DKK 750,000 7.000% Due 12/15/04 120,660
Germany-9.1%
Deutschland Republic
DEM 150,000 8.500% Due 08/21/00 91,132
DEM 150,000 7.250% Due 10/21/02 92,042
Treuhandanstalt
DEM 150,000 6.500% Due 04/23/03 89,933
Total 273,107
Japan-2.9%
Japan-181 (10 Year Issue)
JPY 10,000,000 3.400% Due 06/20/05 88,541
Spain-2.9%
Spanish Government
DEM 150,000 5.750% Due 01/03/07 86,046
Sweden-2.5%
Kingdom of Sweden
ITL 120,000,000 10.000% Due 02/08/01 76,404
Global Bond Portfolio (US Dollar)
</TABLE>
<TABLE>
<CAPTION>
Market
Face Value
Currency Value (Note 2)
<S> <C> <C> <C>
Sovereign Debt-continued
United Kingdom-7.3%
United Kingdom Treasury
GBP 60,000 8.500% Due 12/07/05 $ 112,607
GBP 60,000 7.250% Due 12/07/07 107,075
Total 219,682
Total Sovereign Debt Obligations (Cost-$1,139,385) 1,149,315
U.S. Government Agency Obligations-16.9%
United States-16.9%
Federal National Mortgage Association
USD 100,000 6.000% Due 08/15/00 101,000
USD 100,000 5.625% Due 11/30/00 100,140
USD 100,000 5.875% Due 11/30/01 100,859
USD 100,000 6.000% Due 07/31/02 101,469
USD 100,000 6.540% Due 09/10/07 103,687
Total U.S. Government Agency Obligations (Cost -$500,813) 507,155
Total Investments-89.5% (Cost-$2,675,740) 2,683,988
Other Assets in excess of liabilities-10.5% 315,423
Total Net Assets-100.0% $ 2,999,411
</TABLE>
Notes to the Portfolio of Investments:
Eurodollar-Bonds issued offshore that pay interest and principal in U.S.
Dollars.
Yankee-U.S. Dollar denominated bonds issued by non-U.S. companies in the U.S.
Currency Abbreviations Defined:
AUD-Australian Dollar
DEM-German Deutschemark
DKK-Denmark Krona
GBP-Great British Pound
ITL-Italian Lira
JPY-Japanese Yen
USD-United States Dollar
The accompanying notes are an integral part of the Financial Statements.
- ----------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
- -----------------------------------------------------------------------------
European Bond Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Market
Face Value
Currency Value (Note 2)
<S> <C> <C> <C>
Corporate Debt_19.7%
Denmark_3.6%
Nykredit AS
DKK 598,640 6.000% Due 10/01/26 $ 84,949
Multinational_4.8%
Nordic Investment Bank
DEM 200,000 4.875% Due 03/01/01 111,862
Netherlands_ 8.1%
Commerzbank Overseas Finance
ITL 120,000,000 10.800% Due 04/14/00 74,927
Schleswig-Holsteinische Finance
DEM 200,000 5.625% Due 07/30/07 113,736
Total 188,663
Sweden_3.2%
Swedish Export Credit
ITL 120,000,000 10.750% Due 06/09/00 75,329
Total Corporate Debt (Cost_$458,508) 460,803
U.S. Government Agency Obligations_12.0%
United States_12.0%
Federal National Mortgage Association_Global
DEM 500,000 5.000% Due 02/16/01 280,480
Total U.S. Government Agency Obligations (Cost_$282,283) 280,480
Sovereign Debt Obligations_64.4%
Austria_3.8%
Republic of Austria
DEM 150,000 6.000% Due 02/01/06 88,444
Belgium_3.8%
Kingdom of Belgium
DEM 150,000 6.250% Due 10/06/03 88,817
Denmark_6.9%
Kingdom of Denmark
DKK 1,000,000 7.000% Due 12/15/04 160,881
European Bond Portfolio (US Dollar)
</TABLE>
<TABLE>
<CAPTION>
Market
Face Value
Currency Value (Note 2)
<S> <C> <C> <C>
Sovereign Debt Obligations_continued
France_11.6%
French Treasury Bill
ECU 250,000 4.500% Due 07/12/02 $ 271,434
Germany_14.0%
Deutschland Republic
DEM 150,000 6.000% Due 09/15/03 88,320
DEM 250,000 6.000% Due 01/05/06 147,890
DEM 150,000 6.250% Due 01/04/24 91,298
Total 327,508
Ireland_4.7%
Irish Gilt
IEP 75,000 6.250% Due 10/18/04 109,226
Norway_4.9%
Norwegian Government
NOK 500,000 5.750% Due 11/30/04 68,251
NOK 350,000 6.750% Due 01/15/07 51,041
Total 119,292
Spain_3.7%
Spanish Government
DEM 150,000 5.750% Due 01/03/07 86,046
Sweden_3.3%
Kingdom of Sweden
ITL 120,000,000 10.000% Due 02/08/01 76,404
European Bond Portfolio (USDollar)
</TABLE>
<TABLE>
<CAPTION>
Market
Face Value
Currency Value (Note 2)
<S> <C> <C> <C>
Soveriegn Debt Obligations_continued
United Kingdom_7.7%
United Kingdom Gilts
GBP 100,000 7.750% Due 09/08/06 $ 181,175
Total Sovereign Debt Obligations (Cost_$1,791,695) 1,509,227
Total Investments_96.1% (Cost_$2,250,203) 2,250,510
Other Assets in excess of liabilities_3.9% 91,913
Total Net Assets_100.0% $ 2,342,423
</TABLE>
Notes to the Portfolio of Investments:
Currency Abbreviations Defined:
DEM_German Deutschemark
DKK_Denmark Krona
GBP_Great British Pound
IEP_Irish Pound
ITL_Italian Lira
NOK_Norwegian Krona
ECU_European Currency Unit
The accompanying notes are an integral part of the Financial Statements.
Statements of Assets and Liabilities
Deutsche Portfolios
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Top 50 World Top 50 Europe Top 50 Asia Top 50 US
Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar)
<S> <C> <C> <C> <C>
Assets:
Investments, at value $8,528,670 $7,183,054 $29,393,309 $5,443,009
Cash 226,812 399,719 837,139 615,628
Foreign currency -- -- 514 --
Dividends receivable 35,211 7,932 3,585 1,997
Interest receivable 1,351 867 5,349 1,897
Receivable from securities sold -- -- -- --
Receivable from transactions in Investors' Beneficial Interest 1,045,466 1,099,591 1,110,616 1,071,470
Deferred organization costs 60,494 60,494 60,927 60,494
Total assets 9,898,004 8,751,657 31,411,439 7,194,495
Liabilities:
Payable for investments purchased 756,276 927,610 1,496,641 --
Payable for transactions in Investors' Beneficial Interest -- -- 64,594 --
Unrealized depreciation on forward foreign currency contracts -- -- -- --
Investment management fees payable 24,276 19,927 58,531 13,124
Organization expenses payable 65,912 65,912 65,912 65,912
Accrued expenses and other liabilities 78,324 78,208 72,661 74,641
Total liabilities 924,788 1,091,657 1,758,339 153,677
Net assets $8,973,216 $7,660,000 $29,653,100 $7,040,818
Net Assets:
Applicable to Investors' Beneficial Interests $8,973,216 $7,660,000 $29,653,100 $7,040,818
Cost of investments $7,908,397 $6,652,912 $26,883,646 $4,886,143
Cost of foreign currency -- -- $499 --
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Statements of Assets and Liabilities--Continued
Deutsche Portfolios
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Provesta Investa Japanese Equity Global Bond European Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar) (US Dollar)
<S> <C> <C> <C> <C> <C>
Assets:
Investments, at value $2,410,439 $2,467,622 $1,653,140 $2,683,988 $2,250,510
Cash 5,800 2,662 92,617 344,078 125,545
Foreign currency 2,425 535 -- -- --
Dividends receivable -- -- 610 -- --
Interest receivable 32 51 305 57,185 49,924
Receivable from securities sold 9,618 21,238 -- -- --
Receivable from transactions in Investors'
Beneficial Interest 9,953 9,986 -- -- --
Deferred organization costs 61,036 61,036 61,072 60,964 61,036
Total assets 2,499,303 2,563,130 1,807,744 3,146,215 2,487,015
Liabilities:
Payable for investments purchased 29,789 535 -- -- --
Unrealized depreciation on forward foreign
currency contracts -- 14 -- -- --
Investment management fees payable 6,485 6,593 5,400 7,704 6,256
Organization expenses payable 65,912 65,912 65,912 65,912 65,912
Accrued expenses and other liabilities 72,436 72,431 72,061 73,188 72,424
Total liabilities 174,622 145,485 143,373 146,804 144,592
Net assets $2,324,681 $2,417,645 $1,664,371 $2,999,411 $2,342,423
Net Assets:
Applicable to Investors' Beneficial Interests $2,324,681 $2,417,645 $1,664,371 $2,999,411 $2,342,423
Cost of investments $2,301,580 $2,285,502 $1,827,720 2,675,740 $2,250,203
Cost of foreign currency $2,448 $536 -- -- --
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Statements of Operations
Deutsche Portfolios
For the period from Commencement of Operations through February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Top 50 World Top 50 Europe Top 50 Asia Top 50 US
Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar)
Investment Income:
<S> <C> <C> <C> <C>
Dividend income $ 48,002 $ 12,577 $ 37,627 $ 12,083
Less: foreign withholding taxes (440) (1,424) (2,733) --
Net dividend income 47,562 11,153 34,894 12,083
Interest income 11,916 14,823 50,934 8,612
Total income 59,478 25,976 85,828 20,695
Expenses:
Investment management fees 24,276 19,927 58,531 13,124
Operations agent fees 30,207 30,317 26,888 30,329
Administration agent fees 16,438 16,438 15,123 16,438
Custody and accounting fees 18,494 18,494 17,014 14,795
Audit fees 8,219 8,219 7,561 8,219
Legal fees 4,110 4,110 3,781 4,110
Trustees' fees and expenses 2,672 2,672 2,458 2,672
Insurance fees 534 534 491 534
Reports to shareholders 822 822 756 822
Other expenses 8,842 8,842 8,094 8,796
Amortization of organization costs 5,418 5,418 4,985 5,418
Total expenses 120,032 115,793 145,682 105,257
Net investment (loss) (60,554) (89,817) (59,854) (84,562)
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency:
Net realized gain (loss) on:
Investments 27,576 6,039 (718,080) 3,925
Foreign currency transactions (5,125) 28,590 (16,208) --
Net change in unrealized appreciation/depreciation on:
Investments 620,273 530,141 2,509,663 556,866
Foreign currency 102 (1,767) (88) --
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions: 642,826 563,003 1,775,287 560,791
Net Increase (Decrease) in Net Assets Resulting from Operations $582,272 $473,186 $1,715,433 $476,229
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Statements of Operations--continued
Deutsche Portfolios
For the period from Commencement of Operations though February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Japanese Global European
Provesta Investa Equity Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar) (US Dollar)
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividend income $ 1,402 $ 5,816 $ 871 $ -- $ --
Less: foreign withholding taxes (370) (1,551) (160) -- --
Net dividend income 1,032 4,265 711 -- --
Interest income 603 736 4,456 54,786 44,574
Total income 1,635 5,001 5,167 54,786 44,574
Expenses:
Investment management fees 6,485 6,593 5,400 7,704 6,256
Operations agent fees 27,544 27,540 27,370 27,888 27,526
Administration agent fees 14,795 14,795 14,685 15,014 14,795
Custody and accounting fees 16,644 16,644 16,520 16,891 16,644
Audit fees 7,397 7,397 7,342 7,506 7,397
Legal fees 3,699 3,699 3,672 3,754 3,699
Trustees' fees and expenses 2,404 2,404 2,387 2,440 2,404
Insurance fees 481 481 477 488 481
Reports to shareholders 740 740 734 751 740
Other expenses 7,917 7,918 7,860 8,035 7,917
Amortization of organization costs 4,876 4,876 4,840 4,948 4,876
Total expenses 92,982 93,087 91,287 95,419 92,735
Net investment (loss) (91,347) (88,086) (86,120) (40,633) (48,161)
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency:
Net realized gain (loss) on:
Investments 10,674 36,791 (91,002) (2,939) (4,830)
Foreign currency transactions 26,274 23,007 4,731 1,153 11,565
Net change in unrealized appreciation/depreciation on:
Investments 108,859 182,120 (174,579) 8,248 306
Foreign currency (11) (44) 8 (925) (1,354)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency: 145,796 241,874 (260,842) 5,537 5,687
Net Increase (Decrease) in Net Assets Resulting
from Operations $ 54,449 $ 153,788 ($346,962) ($35,096) ($42,474)
(a) Commencement of operations: 10/17/97 10/17/97 10/20/97 10/15/97 10/17/97
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Statements of Changes in Net Assets
Deutsche Portfolios
For the period from Commencement of Operations through February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Top 50 World Top 50 Europe Top 50 Asia Top 50 US
Portfolio Portfolio Portfolio Portfolio
(USDollar) (USDollar) (USDollar) (USDollar)
<S> <C> <C> <C> <C>
Increase (Decrease) In Net Assets:
Operations--
Net investment (loss) $ (60,554) $ (89,817) $ (59,854) $ (84,562)
Net realized gain (loss) on
investments and foreign currency
transactions 22,451 34,629 (734,288) 3,925
Net change in unrealized appreciation (depreciation) on
investments and foreign currency 620,375 528,374 2,509,575 556,866
Net increase (decrease) in net
assets resulting from operations 582,272 473,186 1,715,433 476,229
Capital Transactions--
Proceeds from contributions 8,694,313 8,364,553 28,723,628 6,982,362
Value of withdrawals (314,483) (1,188,851) (797,073) (428,885)
Net increase in net assets from
capital transactions 8,379,830 7,175,702 27,926,555 6,553,477
Total increase in net assets 8,962,102 7,648,888 29,641,988 7,029,706
Net Assets:
Beginning of period 11,114 11,112 11,112 11,112
End of period $8,973,216 $ 7,660,000 $29,653,100 $7,040,818
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Statements of Changes in Net Assets--Continued
Deutsche Portfolios
For the period from Commencement of Operations through February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Provesta Investa Japanese Equity Global Bond European Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
(USDollar) (USDollar) (USDollar) (USDollar) (USDollar)
<S> <C> <C> <C> <C> <C>
Increase (Decrease) In Net Assets:
Operations--
Net investment (loss) $ (91,347) $ (88,086) $ (86,120) $ (40,633) $ (48,161)
Net realized gain (loss) on investments and
foreign currency transactions 36,948 59,798 (86,271) (1,786) 6,735
Net change in unrealized appreciation (depreciation) on
investments and foreign currency 108,848 182,076 (174,571) 7,323 (1,048)
Net increase (decrease) in net assets
resulting from operations 54,449 153,788 (346,962) (35,096) (42,474)
Capital Transactions--
Proceeds from contributions 2,278,724 2,252,980 2,000,450 3,023,649 2,474,351
Value of withdrawals (19,604) (235) (229) (254) (100,566)
Net increase in net assets from capital transactions 2,259,120 2,252,745 2,000,221 3,023,395 2,373,785
Total increase in net assets 2,313,569 2,406,533 1,653,259 2,988,299 2,331,311
Net Assets:
Beginning of period 11,112 11,112 11,112 11,112 11,112
End of period $2,324,681 $2,417,645 $1,664,371 $2,999,411 $2,342,423
(a) Commencement of operations: 10/17/97 10/17/97 10/20/97 10/15/97 10/17/97
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Financial highlights
Deutsche Portfolios
For the period from Commencement of Operations through February 28, 1998 (a)
(unaudited)
<TABLE>
<CAPTION>
Top 50 World Top 50 Europe Top 50 Asia Top 50 US
Portfolio Portfolio Portfolio Portfolio
(USDollar) (USDollar) (USDollar) (USDollar)
<S> <C> <C> <C> <C>
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 8,973 $ 7,660 $ 29,653 $ 7,041
Ratio of expenses to average daily net assets(b) 4.89% 5.75% 2.45% 6.73%
Ratio of net investment income (loss) to average net
assets(b) (2.47)% (4.46)% (1.01)% (5.41)%
Portfolio turnover(c) 62% 22% 9% 18%
Average commission rate per share(d) $0.1286 $ 0.1287 $ 0.0156 $ 0.0690
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
</TABLE>
(b) Annualized
(c) Not annualized
(d) Represents average brokerage commission rate per share of total security
trades on which brokerage commissions were charged.
The accompanying notes are an integral part of the Financial Statements.
Financial highlights--Continued
Deutsche Portfolios
For the period from Commencement of Operations through February 28, 1998 (a)
(unaudited)
<TABLE>
<CAPTION>
Provesta Investa Japanese Equity Global Bond European Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
(USDollar) (USDollar) (USDollar) (USDollar) (USDollar)
<S> <C> <C> <C> <C> <C>
Ratios/Supplemental Data:
Net assets, end of period
(000's) $ 2,325 $ 2,417 $ 1,664 $ 2,999 $ 2,342
Ratio of expenses to
average daily net
assets(b) 12.17% 11.98% 14.60% 9.22% 11.11%
Ratio of net
investment income (loss) average
net assets(b) (11.96)% (11.34)% (13.78)% (3.92)% (5.77)%
Portfolio turnover(c) 23% 17% 41% 22% 29%
Average commission rate
per share(d) $ 0.2242 $ 0.1809 $ 0.0503 -- --
(a) Commencement of operations: 10/17/97 10/17/97 10/20/97 10/15/97 `0/17/97
</TABLE>
(b) Annualized
(c) Not annualized
(d) Represents average brokerage commission rate per share of total security
trades on which brokerage commissions were charged.
The accompanying notes are an integral part of the Financial Statements.
Notes to Financial Statements
Deutsche Portfolios
February 28, 1998 (unaudited)
Note 1--Organization
Deutsche Portfolios ("Portfolio Trust") was organized on June 20, 1997, as a
business trust under the laws of the State of New York and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Portfolio Trust currently consists of ten
separate investment series (each a "Portfolio" and collectively the
"Portfolios"), each of which is, in effect, a separate mutual fund. The
accompanying financial statements and notes relate to nine of these Portfolios
which are Top 50 World Portfolio (US Dollar) ("Top 50 World Portfolio"), Top 50
Europe Portfolio (US Dollar) ("Top 50 Europe Portfolio"), Top 50 Asia Portfolio
(US Dollar) ("Top 50 Asia Portfolio"), Top 50 US Portfolio (US Dollar) ("Top 50
US Portfolio"), Provesta Portfolio (US Dollar) ("Provesta Portfolio"), Investa
Portfolio (US Dollar) ("Investa Portfolio") and Japanese Equity Portfolio (US
Dollar) ("Japanese Equity Portfolio") (collectively, the "Equity Portfolios"),
and Global Bond Portfolio (US Dollar) ("Global Bond Portfolio") and European
Bond Portfolio (US Dollar) ("European Bond Portfolio") (collectively, the "Bond
Portfolios").
The investment manager of the Portfolios is Deutsche Fund Management, Inc.
("DFM" or the "Manager"), an indirect subsidiary of Deutsche Bank AG. The
investment objective of the Equity Portfolios is primarily to achieve high
capital appreciation, and as a secondary objective, reasonable dividend income.
The investment objective of the Bond Portfolios is to achieve steady, high
income. The Portfolios commenced operations in October 1997.
Note 2--Significant Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies followed by the Portfolios:
Security Valuation
The value of equity securities listed on a U.S. securities exchange are valued
at the last quoted sales price on the securities exchange or national securities
market on which such securities are primarily traded. Securities listed on a
foreign exchange considered by the Manager to be a primary market for the
securities are valued at the last quoted sale price available before the time
when net assets are valued. Unlisted securities, and securities for which the
Manager determines the listing exchange is not a primary market, are valued at
the average of the quoted bid-and-ask prices in the over-the-counter market.
Debt securities with a remaining maturity of less than 60 days are valued at
amortized cost, which approximates market value. Debt securities with a maturity
of 60 days or more are based on the last sales price on a national securities
exchange or in the absence of recorded sales, at the average of readily
available closing bid-and-asked prices on such exchanges or at the average of
the readily available closing bid and asked prices in the over-the-counter
market, if such exchange or market constitutes the broadest and most
representative market for the security. Any security for which market quotations
are not readily available, are priced in accordance with procedures adopted by
the Trustees of the Portfolio Trust.
Forward Foreign Currency Contracts
The Portfolio Trust enter into forward contracts with various counterparties.
Forward contracts are over-the-counter contracts for delayed delivery of
securities or currency in which the buyer agrees to buy and the seller agrees to
deliver a specified security or curreny at a specified price on a specified
date. Because the terms of forward contracts are not standardized, they are not
traded on organized exchanges and generally can be terminated or closed-out only
by agreement of both parties to the contract. During the period the forward
contract is open, changes in the value of the contract are recognized as
unrealized gains or losses. When the forward contract is closed, the Portfolio
Trust records a realized gain or loss equal to the difference between the
proceeds from (or cost of) the close-out of the contract and the original
contract price.
Deutsche Portfolios
Investment Transactions
Investment transactions are recorded on trade date. Cost of securities sold is
calculated using identified cost method. Dividend income is recorded on ex-
dividend date and interest income is recorded on an accrual basis. Such dividend
and interest income is recorded net of the unrecoverable portion of any
applicable foreign withholding tax.
Foreign Currency Translation
The books and records of the Portfolios are maintained in US Dollars. Assets and
liabilities denominated in foreign currency amounts are translated at the
relevant foreign exchange rate. Purchase and sales of investment securities,
income and expenses are recorded at the prevailing exchange rate on the
respective days of such transactions. The resultant gains and losses arising
from exchange rate fluctuations are identified separately in the Statements of
Operations, except for such amounts attributable to investments which are
included in net realized and unrealized gains and losses on investments. Foreign
investments may involve certain considerations and risks not typically
associated with those of domestic origin as a result of, among others, the
possibility of political and economic developments and the level of governmental
supervision and regulation of foreign securities markets.
Federal Income Taxes
Each Portfolio is treated as a partnership under the U.S. Internal Revenue Code
(the "Code"). Accordingly, each Portfolio will not be subject to any federal
income tax on its income and net realized gains (if any). However, each investor
in a Portfolio will be taxed on its allocable share of the partnership's income
and capital gains for purposes of determining its federal tax liability. The
determination of such share will be made in accordance with the applicable
sections of the Code. It is intended that each Portfolio's assets, income and
allocation will be managed in such a way that a regulated investment company
investing in the Portfolio will be able to satisfy the requirements of
Subchapter M of the Code, assuming that such investment company invests all of
its assets in the corresponding Portfolio.
Expenses
Expenses are recorded on an accrual basis. Expenses of the Portfolio Trust which
are directly identifiable to a specific Portfolio are charged to that Portfolio.
Expenses not directly attributable to a specific Portfolio are allocated among
the Portfolios in such a manner as deemed equitable by the Trustees.
Deferred Organization Expenses
Organization expenses incurred in connection with the organization and initial
registration of the Portfolio Trust were paid initially by DFM and will be
reimbursed by the Portfolios. Such organization expenses have been deferred and
will be amortized ratably over a period of sixty months from the commencement of
operations of the Portfolios. Any amount received by the Portfolio from its
corresponding Fund as a result of a redemption by Edgewood Services Inc.,
distributor of the Deutsche Funds, Inc. of any of its Initial Interest in the
Portfolio will be applied so as to reduce the amount of unamortized organization
expenses. The amount paid by the Portfolio Trust on any withdrawal by the
Deutsche Funds, Inc. of all or part of its Initial Interest in the Portfolios
will be reduced by a portion of any unamortized organization expenses of the
Portfolios, determined by the proportion of the amount of the Initial Interest
withdrawn to the aggregate amount of the Initial Interests in the Portfolios
then outstanding after taking into account any prior withdrawals of any portion
of the Initial Interests in the Portfolios.
Deutsche Portfolios
Note 3--Significant Agreements and Transactions with Affiliates
The Portfolio Trust has entered into an Investment Management Agreement (the
"Management Agreement") with DFM, an indirect subsidiary of Deutsche Bank AG.
DFM retains overall responsibility for supervision of the investment management
program for each Portfolio but has delegated the day-to-day management of the
investment operations of each Portfolio to an investment advisor. As
compensation for the services rendered by DFM under the investment management
agreement with the Portfolio Trust with respect to each Portfolio, DFM receives
a fee from each Portfolio, which is computed daily and paid monthly, equal to
the following percentages of each Portfolio's average daily net assets on an
annualized basis for the Portfolio's then-current fiscal year:
Top 50 World Portfolio 1.00%
Top 50 Europe Portfolio 1.00%
Top 50 Asia Portfolio 1.00%
Top 50 US Portfolio 0.85%
Provesta Portfolio 0.85%
Investa Portfolio 0.85%
Japanese Equity Portfolio 0.85%
Global Bond Portfolio 0.75%
European Bond Portfolio 0.75%
DFM has retained the services of DWS International Portfolio Management GmbH
("DWS") as investment adviser of the Portfolios other than the Top 50 US
Portfolio (US Dollar). Deutsche Morgan Grenfell Investment Management, Inc.
("DMGIM") is the investment adviser of the Top 50 US Portfolio (US Dollar). The
advisers are indirect subsidiaries of Deutsche Bank AG. As compensation for
their services, DWS and DMGIM each receives a fee, paid by DFM, which is based
on the average daily net assets of the applicable Portfolio.
The Portfolio Trust has retained Federated Services Company as Operations Agent
to the Portfolios. 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, subject to a minimum fee
of $60,000 per Portfolio annually. Federated Services Company receives, in its
capacity as Administrator and Transfer Agent of the Deutsche Funds, Inc. and as
Operating Agent of the Portfolios, a minimum aggregate fee from each Portfolio,
its corresponding Fund and any other fund investing in each Portfolio, taken
together, of $75,000 for the first year of each Portfolio's operations and
$125,000 for the second year.
The Portfolio Trust has entered into an administrative agreement with IBT Trust
Company (Cayman) Ltd. ("IBT (Cayman)"). As Administrative Agent of the
Portfolios, IBT (Cayman) receives a fee from each Portfolio, which is computed
daily and paid monthly, at the annual rate of $5,000 per each Portfolio.
From commencement of operations to February 28, 1998, affiliates of Deutsche
Bank AG received brokerage commissions as a result of executing agency
transactions in portfolio securities in the amount of $7,090, $9,236, $7,724,
$8,846 and $6,979, from the Top 50 World Portfolio, Top 50 Europe Portfolio, Top
50 US Portfolio, Provesta Portfolio, Investa Portfolio, respectively.
Note 4--Investment Portfolio Transactions
Purchases and sales of investments, exclusive of short-term securities, for each
Portfolio for the period from commencement of operations, to February 28, 1998
are as follows:
<TABLE>
<CAPTION>
Top 50 Top 50 Top 50 Top 50
World Portfolio Europe Portfolio Asia Portfolio US Portfolio
<S> <C> <C> <C> <C>
Purchases $11,228,603 $7,541,467 $28,798,173 $5,510,300
Sales $ 3,347,782 $ 894,594 $ 1,196,447 $ 628,082
</TABLE>
Deutsche Portfolios
<TABLE>
<CAPTION>
Provesta Investa Japanese
Portfolio Portfolio Equity Portfolio
<S> <C> <C> <C>
Purchases $2,699,625 $2,545,443 $2,456,907
Sales $ 408,719 $ 296,732 $ 538,185
Global Bond European
Portfolio Bond Portfolio
Purchases
U.S. Government $ 789,438 $ 277,766
Non-U.S. Government 2,340,436 2,466,117
Total $3,129,874 $2,743,883
Sales
U.S. Government $ 298,125 $ --
Non-U.S. Government 153,070 488,850
Total $ 451,195 $ 488,850
</TABLE>
At February 28, 1998, the cost of investments and the unrealized appreciation
(depreciation) of investments for each Portfolio were as follows:
<TABLE>
<CAPTION>
Top 50 Top 50 Top 50
World Portfolio Europe Portfolio Asia Portfolio
<S> <C> <C> <C>
Cost of Investments $7,908,397 $6,652,912 $26,883,646
Gross Unrealized Appreciation 725,873 630,819 3,358,604
Gross Unrealized Depreciation (105,600) (100,678) (848,941)
Net Unrealized Appreciation/(Depreciation) 620,273 530,141 2,509,663
</TABLE>
<TABLE>
<CAPTION>
Top 50 Provesta Investa
US Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Cost of Investments $4,886,143 $2,301,580 $ 2,285,502
Gross Unrealized Appreciation 589,542 197,084 226,946
Gross Unrealized Depreciation (32,676) (88,225) (44,826)
Net Unrealized Appreciation/(Depreciation) 556,866 108,859 182,120
</TABLE>
<TABLE>
<CAPTION>
Japanese Global Bond European
Equity Portfolio Portfolio Bond Portfolio
<S> <C> <C> <C>
Cost of Investments $1,827,720 $2,675,740 $ 2,250,203
Gross Unrealized Appreciation 17,863 28,768 17,010
Gross Unrealized Depreciation (192,442) (20,520) (16,704)
Net Unrealized Appreciation/(Depreciation) (174,579) 8,248 306
</TABLE>
Deutsche Portfolios
Note 5--Forward Foreign Currency Contracts
Certain Portfolios had forward foreign currency contracts which contractually
obligate the Portfolio to deliver or receive currencies at specified future
dates. The following contracts were open at February 28, 1998:
<TABLE>
<CAPTION>
Foreign
Settlement Contract Current Unrealized
Provesta Portfolio Date U.S. $ Value Value Gain (Loss)
<S> <C> <C> <C> <C> <C>
Purchase Deutsche Mark 03/02/98 $21,133 $21,147 $ 14
Sale Deutsche Mark 03/02/98 9,613 9,620 (7)
Purchase French Franc 03/31/98 1,457 1,450 (7)
Investa Portfolio
Sale British Pound 03/02/98 $21,229 $21,243 $(14)
</TABLE>
Note 6--Off-Balance Sheet Risk and Concentration of Credit Risk
The Statement of Assets and Liabilities includes the market or fair value of
contractual commitments involving forward settlement contracts. These
instruments involve elements of market risk in excess of amount reflected on the
Statement of Assets and Liabilities.
Norional amounts are indicative only of the volume of activity; they are not a
measure of market risk. Notional amounts of forward contracts include both
purchase and sale commiments. Notional amounts of futures include contracts
purchased as well as contracts sold. Market risk is influenced by the nature of
the items that comprise a particular category of financial instruments and by
the relationship among the various off-balance sheet categories as well as the
relationship between off-balance sheet items and items recorded on the
Portfolios' Statement of Assets and Liabilities. Credit risk is measured by the
loss the Portfolios would record if its counterparties failed to perform
pursuant to terms of their obligations to the Portfolios.
DEUTSCHE TOP 50 WORLD
DEUTSCHE TOP 50 EUROPE
DEUTSCHE TOP 50 ASIA
DEUTSCHE TOP 50 US
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 World ("Top 50 World"), Deutsche
Top 50 Europe ("Top 50 Europe"), Deutsche Top 50 Asia ("Top 50 Asia") and
Deutsche Top 50 US ("Top 50 US")(each, a "Fund" and collectively, the "Funds").
Each Fund is a non-diversified series of the Deutsche Funds, Inc., an open-end
management investment company organized as a Maryland corporation (the
"Corporation") (together with the Funds, the "Deutsche Funds"). The investment
objective of each Fund is primarily to achieve high capital appreciation and, as
a secondary objective, reasonable dividend income.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, each Fund seeks to achieve its investment objective by investing
all of its investable assets in a corresponding non-diversified open-end
management investment company (each a "Portfolio" and, collectively, the
"Portfolios"). Each Portfolio is a series of the Deutsche Portfolios (the
"Portfolio Trust") and has the same investment objective as its corresponding
Fund. Each Fund invests in its corresponding Portfolio through the Hub and
Spoke(R) master-feeder investment fund structure. "Hub and Spoke" is a
registered service mark of Signature Financial Group, Inc.
Each Portfolio is managed by Deutsche Fund Management, Inc. ("DFM" or the
"Manager"), a registered investment adviser and an indirect subsidiary of
Deutsche Bank AG, a major global financial institution.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Funds has been filed with
the Securities and Exchange Commission ("SEC") in a Statement of Additional
Information dated April 30, 1998 (as supplemented from time to time). This
information is incorporated herein by reference and is available without charge
upon written request from the Funds' transfer agent, Federated Shareholder
Services Company, or by calling toll-free 888-4-DEUTSCHE.
INVESTMENTS IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, DEUTSCHE BANK AG OR ANY OTHER BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN CLASS A SHARES
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 April 30, 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Expense Summary........................................ 2
Financial Highlights................................... 3
The Funds.............................................. 4
Investment, Objective, Policies, and Restrictions...... 4
All Funds............................................. 5
Risk Factors........................................... 8
Equity Investments.................................... 8
Foreign Investments (Each Portfolio Except
Top 50 US Portfolio).................................. 8
Emerging Markets (Each Portfolio Except
Top 50 US Portfolio).................................. 9
Fixed Income Securities............................... 9
Futures, Options and Warrants......................... 9
Geographic Investment Emphasis........................ 9
Local Securities Markets.............................. 9
Management of the Corporation and the Portfolio Trust.. 10
Manager............................................... 10
Adviser............................................... 10
Portfolio Management.................................. 10
Investing in the Funds................................. 13
Class A Shares........................................ 13
Class B Shares........................................ 13
Purchase of Shares..................................... 13
Investing in Class A Shares............................ 14
Special Purchase Features.............................. 16
Systematic Investment Program......................... 16
Retirement Plans...................................... 16
Exchange Privilege..................................... 16
Class A Shares........................................ 16
Class B Shares........................................ 16
Requirements for Exchange............................. 17
Tax Consequences...................................... 17
Making an Exchange.................................... 17
Telephone Instructions................................ 17
Redemption of Shares................................... 17
Redeeming Shares Through a Financial Intermediary.... 17
Redeeming Shares by Telephone......................... 17
Redeeming Shares by Mail.............................. 17
Special Redemption Features............................ 18
Systematic Withdrawal Program......................... 18
Contingent Deferred Sales Charge....................... 18
Class A Shares........................................ 18
Class B Shares........................................ 18
Class A Shares and Class B Shares..................... 18
Elimination of Contingent Deferred Sales Charge....... 18
Account and Share Information.......................... 19
Certificates and Confirmations........................ 19
Accounts with Low Balances............................ 19
Dividends and Distributions............................ 19
Net Asset Value........................................ 19
Organization........................................... 19
Taxes.................................................. 20
Additional Information................................. 21
Appendix A............................................. 21
</TABLE>
- --------------------------------------------------------------------------------
EXPENSE SUMMARY
- --------------------------------------------------------------------------------
The following table summarizes estimated shareholder transaction and annual
operating expenses of Class A shares and Class B shares of each Fund and 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
<TABLE>
<CAPTION>
Class A Class B
---------- ----------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)............. 5.50% None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price).. None None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable).................................................... 0.00%(1) 5.00%(2)
Redemption Fees (as a percentage of amount redeemed, if applicable)....................... None None
Exchange Fees............................................................................. None None
</TABLE>
(1) Class A shares purchased without an initial sales charge (i) based on an
initial investment of $1,000,000 or more or (ii) with proceeds of a
redemption of shares of an unaffiliated investment company purchased or
redeemed with a sales charge and not distributed by Edgewood, may be
charged a contingent deferred sales charge of 1.00% for redemptions made
within one full year of purchase. See "Contingent Deferred Sales Charge."
(2) In the first year declining to 1.00% in the sixth year and 0% thereafter.
Expense Table
Annual Operating Expenses (After Expense Reimbursement)
(As a percentage of projected average net assets)
<TABLE>
<CAPTION>
Top 50 World
Top 50 Europe
Top 50 Asia Top 50 US
----------------- ------------------
Class A Class B Class A Class B
------- ------- ------- --------
<S> <C> <C> <C> <C>
Advisory Fees............................................ 1.00% 1.00% 0.85% 0.85%
12b-1 Fees
Service.................................................. 0.25% 0.25% 0.25% 0.25%
Distribution............................................. 0.00% 0.75% 0.00% 0.75%
Other Expenses (after expense reimbursement)............. 0.35% 0.35% 0.40% 0.40%
----- ----- ----- -----
Total Operating Expenses (after expense reimbursement)... 1.60% 2.35% 1.50% 2.25%
===== ===== ===== =====
</TABLE>
- --------------------------------------------------------------------------------
EXPENSE SUMMARY--CONTINUED
- --------------------------------------------------------------------------------
Example
- --------------------------------------------------------------------------------
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Top 50 World
Top 50 Europe
Top 50 Asia Top 50 US
---------------- ----------------
Class A Class B Class A Class B
---------------- ----------------
<S> <C> <C> <C> <C>
1 Year................................................................................ $ 70 $ 73 $ 69 $ 72
3 Years............................................................................... $103 $103 $100 $100
You would pay the following expenses on the same investment assuming no
redemption:
1 Year................................................................................ $ 74 $ 24 $ 69 $ 23
3 Years............................................................................... $103 $ 73 $100 $ 70
</TABLE>
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in a
Fund would bear. Wire transferred redemptions of less than $5,000 may be subject
to additional fees. The fees and expenses included in "Other Expenses" are
estimated for each Fund's first fiscal year and include (i) the fees paid to the
Administrator, Administrative Agent, Operations Agent, Transfer Agent, Fund
Accounting Agent and Custodian (as each are defined 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 each Fund's ratio
of total operating expenses to average annual net assets at the level indicated
above. Assuming no reimbursement of expenses, estimated "Other Expenses" for the
first fiscal year of Top 50 World, Top 50 Europe, Top 50 Asia and Top 50 US
would be 0.96%, 0.96%, 0.96% and 0.95%, respectively, and "Total Operating
Expenses" would be 2.21%, 2.21%, 2.21% and 2.20%, respectively, of the Fund's
average daily net assets attributed to Class A shares and 2.96%, 2.96%, 2.96%
and 2.95%, respectively, of the Fund's average daily net assets attributed to
Class B shares. For a more detailed description of contractual fee arrangements,
including expense reimbursements, see "Management of the Corporation and the
Portfolio Trust." In connection with the above example, investors should note
that $1,000 is less than the minimum investment requirement for each Class of
each Fund. See "Purchase of Shares." Because the fees paid under the 12b-1 Plan
of the Fund are charged against the assets of the Fund, long-term shareholders
may indirectly pay an amount that is more than the economic equivalent of the
maximum front-end sales charge that such Fund would be permitted to charge. The
example is hypothetical; it is included solely for illustrative purposes. It
should not be considered a representation of future performance; actual expenses
may be more or less than those shown.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Unaudited financial highlights for Class A shares of the Funds for the period
from commencement of operations through February 28, 1998, are incorporated
herein by reference to the Semi-Annual Report and supplement to the Prospectus
dated April 30, 1998, which accompanies this Prospectus. Class B shares did not
have any operations through February 28, 1998.
- --------------------------------------------------------------------------------
THE FUNDS
- --------------------------------------------------------------------------------
Each Fund is a non-diversified, open-end management investment company and is a
series of shares of common stock of the Deutsche Funds, Inc., a Maryland
corporation incorporated on May 22, 1997 (see "Organization"). The investment
objective of each Fund is primarily to achieve high capital appreciation and, as
a secondary objective, reasonable dividend income.
Each Fund seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Portfolio that has the same investment
objective as the Fund. The Top 50 World invests all of its investable assets in
the Top 50 World Portfolio (US Dollar) ("Top 50 World Portfolio"); the Top 50
Europe invests all of its investable assets in the Top 50 Europe Portfolio (US
Dollar) ("Top 50 Europe Portfolio"); the Top 50 Asia invests all of its
investable assets in the Top 50 Asia Portfolio (US Dollar) ("Top 50 Asia
Portfolio"); and the Top 50 US invests all of its investable assets in the Top
50 US Portfolio (US Dollar) ("Top 50 US Portfolio"). Each Portfolio is an
open-end management investment company and a series of shares of beneficial
interest in the Deutsche Portfolios, a trust organized under the laws of the
State of New York (see "Organization").
Shares of the Funds are sold continuously by the Funds' distributor, Edgewood
Services, Inc. ("Edgewood" or the "Distributor"). The Funds require a minimum
initial investment of $5,000. The minimum subsequent investment is $500 (see
"Purchase of Shares"). If a shareholder reduces his or her investment in a Fund
to less than the applicable minimum investment, the investment is subject to
mandatory redemption. See "Account and Share Information--Accounts with Low
Balances."
Proceeds from the sale of shares of each Fund are invested in its corresponding
Portfolio, which then invests its assets in accordance with its investment
objective and policies. DWS International Portfolio Management GmbH is the
investment adviser of the Portfolios other than Top 50 US Portfolio (the "DWS
Adviser"). Deutsche Morgan Grenfell Investment Management Inc. is the investment
adviser of the Top 50 US Portfolio (the "DMGIM Adviser"); and together with the
DWS Adviser or severally as the context may require, the "Adviser." The Advisers
are indirect subsidiaries of Deutsche Bank AG. Federated Services Company is the
administrator of the Funds (the "Administrator") and the operations agent of the
Portfolios ("Operations Agent"). IBT Fund Services (Canada) Inc. ("IBT
(Canada)") is the fund accounting agent of the Funds and the Portfolios ("Fund
Accounting Agent"). Federated Shareholder Services Company is the transfer agent
and dividend disbursing agent of the Funds ("Transfer Agent"). IBT Trust Company
(Cayman) Ltd. ("IBT (Cayman)") is the administrative agent of the Portfolios
("Administrative Agent"). Investors Bank & Trust Company ("IBT") is the
custodian of the Funds and the Portfolios ("Custodian"). The Board of Directors
of the Corporation and the Board of Trustees of the Portfolio Trust provide
broad supervision over the affairs of the Funds and of the Portfolios,
respectively. The Directors who are not "interested persons" of the Corporation
as defined in the Investment Company Act of 1940, as amended (the "1940
Act")(the "Independent Directors"), are the same as the Trustees who are not
"interested persons" of the Portfolio Trust as defined in the 1940 Act (the
"Independent Trustees"). A majority of the Corporation's Directors and the
Portfolio Trust's Trustees are not affiliated with the Manager, the Adviser or
the Distributor. For further information about the Directors of the Corporation
and the Trustees of the Portfolio Trust, see "Management of the Corporation and
the Portfolio Trust" herein and "Directors, Trustees, and Officers" in the
Statement of Additional Information.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES,
AND RESTRICTIONS
- --------------------------------------------------------------------------------
The investment objective of each Fund is primarily to achieve high capital
appreciation and, as a secondary objective, reasonable dividend income. No Fund
represents a complete investment program, nor is each Fund suitable for all
investors.
Each Fund seeks to achieve its investment objective by investing all its
investable assets in a corresponding Portfolio, an open end management company
that has the same investment objective and investment policies as the Fund.
Since the investment characteristics and experience of each Fund will correspond
directly with those of its corresponding Portfolio, the discussion in this
Prospectus focuses on the investments and investment policies of the Portfolios.
The number of issuers of equity securities held in each Portfolio is generally
fifty. Each of the Portfolios generally invests only in those companies that the
portfolio managers consider to be of outstanding quality in their particular
field. In selecting the fifty issuers, the Adviser will emphasize some or all of
the following attributes:
. strong market position within its respective market;
. profitability, predictability and duration of earnings growth, reflected in
sound balance sheet ratios and financial statements;
. high quality of management with an orientation toward strong,
long-term earnings;
. long-range strategic plans in place;
. generally publicly-held with broad distribution of financial information
related to the company's operations.
Companies selected for each Portfolio will be monitored on a consistent basis to
detect risk in the form of possible changes in their earnings outlook and/or
financial condition. The Adviser will monitor the annual and interim financial
statements of a broad universe of companies, conduct sector and industry
analysis and maintain company contact, including company visits and attendance
at company meetings and analyst presentations. In addition, the Adviser will
assess macroeconomic and stock market conditions in the various countries in
which the companies held in each Portfolio are domiciled or have their primary
stock market listings.
The Adviser will consider the geographic market focus of each Portfolio in
considering companies proposed for investment, which may cause modest
differences in style or investment approach among the respective Portfolios.
Because each Portfolio is classified as "non-diversified" under the 1940 Act,
the performance of each Portfolio may be subject to greater fluctuation than
that of a diversified investment company. See "Fundamental Investment
Restrictions" below.
The Top 50 World Portfolio (US Dollar) pursues its (and the Top 50 World's)
investment objective by investing at least 65% of its total assets in equity
securities. In selecting securities for the Portfolio, emphasis will be placed
on international diversification. While there are no specific percentage
limitations on investments in any single country, the Portfolio generally
expects to maintain a significant investment in at least three regions around
the world--e.g., Europe, North America, Asia.
The Portfolio invests in companies with a strong market position, which are
globally competitive, have outstanding growth potential and offer above-average
opportunities to take advantage of one or more of the following global future
trends ("megatrends"):
1. Strong population growth in emerging markets;
2. Aging population in industrialized nations, leading to growing demands for
the products and services of healthcare and related industries;
3. Transition to an information and communications society;
4. Growing demand for brand names;
5. Growing oil/energy consumption worldwide.
The Top 50 Europe Portfolio (US Dollar) pursues its (and the Top 50 Europe's)
investment objective by investing at least 65% of its total assets in the equity
securities of issuers located in European countries, including those which are
member states of the European Union, those which are party to the Convention on
the European Economic Area ("CEEA"), Switzerland, Slovakia, Czech Republic, and
Hungary.
The Portfolio invests primarily in European companies with above-average
potential for capital gain. The Adviser places strong emphasis on companies that
have clear strategic goals, that concentrate on their core businesses, and whose
management gives appropriate consideration to return on investment.
The Top 50 Asia Portfolio (US Dollar) pursues its (and the Top 50 Asia's)
investment objective by investing at least 65% of its total assets in the equity
securities of issuers with a domicile or business focus in Asian countries,
including China, Hong Kong, India, Indonesia, Japan, South Korea, Malaysia,
Philippines, Singapore, Taiwan, Thailand. A company has its business focus in
Asia when the majority of its profits or sales are made there.
In selecting securities for the Portfolio, the Adviser will seek companies with
some or all of the following attributes: strong prospects for medium-term
growth, solid market position, with favorable financial performance and
indicators, and high quality management whose aim is toward longer-term
earnings, with a strategic view of their companies and markets.
The Top 50 US Portfolio (US Dollar) pursues its (and the Top 50 US's) investment
objective by investing at least 65% of its total assets in the equity securities
of issuers domiciled or headquartered in the United States. These companies may
also conduct a substantial part of their business outside the United States.
The Portfolio will invest primarily in companies that dominate their markets and
maintain a leadership position through the combination of management talent,
product or service differentiation, economies of scale and financial strength.
These companies, in the opinion of the Adviser, are aggressive and tenacious
companies, generally referred to as "Bulldogs," that are leading-edge U.S.
corporations and have a "no holds barred" attitude geared toward market share
dominance.
The investment style of the Portfolio will also place great emphasis on the
market valuation of a company's earnings (i.e. P/E ratio), as well as the
predictability and durability of its earnings growth. The analysis of industry
trends will also play an important part in the portfolio management process.
Although the assets of the Portfolio are invested primarily in common stocks,
other securities with equity characteristics may be purchased, including
securities convertible into common stock, and warrants. The Portfolio may
participate in initial public offerings from time to time and may only invest in
publicly traded securities.
All Funds
Listed Securities
Each Portfolio will invest primarily in listed securities ("Listed Securities").
For purposes of this prospectus, Listed Securities are defined as securities
meeting at least one of the following requirements: (a) they are listed on a
stock exchange in a member state of the European Union ("Member State") or in
another state which is a party to the CEEA, or are included on another regulated
market in a Member State or in another state party to the CEEA which market is
recognized, open to the public and operates regularly; (b) they are admitted to
the official listing on one of the stock exchanges listed in Appendix A or
included on one of the regulated markets listed in Appendix A; or (c)
application is to be made for admission to official listing on one of the
aforementioned stock exchanges or inclusion in one of the aforementioned
regulated markets and such admission or inclusion is to take place within 12
months of their issue.
Unlisted Securities and Notes
Up to a total of 10% of the net assets of each Portfolio may be invested in:
(a) securities that are consistent with the Portfolio's investment objective and
policies, which are not admitted to official listing on one of the stock
exchanges or included on one of the regulated markets, described above;
(b) interests in loans which are portions of an overall loan granted by a third
party and for which a note has been issued ("Notes"), provided these Notes
can be assigned at least twice after purchase by the Portfolio, and the Note
was issued by:
. 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"),
. another German domestic authority, or a regional government or local
authority of another Member State or another state party to the CEEA for
which a zero weighting was notified according to Article 7 of the Council
Directive 89/647/EEC of 18 December 1989 on a solvency ratio for credit
institutions (Official Journal EC No. L386, p. 14),
. other corporate bodies or institutions organized under public law and
registered domestically in Germany or in another Member State or another
state party to the CEEA,
. other debtors, if guaranteed as to the payment of interest and repayment
of principal by one of the aforementioned bodies, or
. companies which have issued securities which are admitted to official
listing on a German or other foreign stock exchange.
Investments in Notes are subject to each Portfolio's overall 20% limitation on
fixed income securities. See "Fixed Income Securities" below.
The current Member States and the states party to the CEEA and OECD Members are
listed in Appendix A.
Fixed Income Securities
Each Portfolio is permitted to invest in fixed income securities, although it
intends to remain invested in equity securities to the extent practical in light
of its objective. Each Portfolio's investment in fixed income securities
(excluding bank deposits and money market instruments) will not exceed 20% of
the Portfolio's net assets. For purposes of each Portfolio's investments,
convertible bonds and bonds with warrants would be considered equities, not
fixed income securities.
The fixed income securities in which each Portfolio may invest will be rated on
the date of investment, within the four highest ratings of Moody's Investors
Service, Inc. ("Moody's"), currently Aaa, Aa, A and Baa, or of Standard & Poor's
("S&P"), currently AAA, AA, A and BBB or, if unrated, will be, in the opinion of
the Adviser, of comparable quality to such rated securities discussed above.
Fixed income securities rated Baa by Moody's or BBB by S&P have speculative
characteristics. See Appendix B to the Statement of Additional Information for a
description of these ratings.
Bank Deposits and Money Market Instruments
Each Portfolio may temporarily invest in bank deposits and money market
instruments maturing in less than 12 months. These instruments include credit
balances and bank certificates of deposit, discounted treasury notes and bills
issued by the Federal Republic of Germany ("FRG"), the states of the FRG, the
European Union, OECD Members or quasi-governmental entities of any of the
foregoing.
Under normal circumstances each Portfolio will purchase bank deposits and money
market instruments to invest temporary cash balances or to maintain liquidity to
meet redemptions. However, each Portfolio may temporarily invest in bank
deposits and money market instruments, up to 49% of its net assets, as a measure
taken in the Adviser's judgment during, or in anticipation of, adverse market
conditions. For each Portfolio, except the Top 50 US Portfolio, certificates of
deposit from the same credit 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 theoption.
Call options on securities may be sold only if the securities underlying the
option transaction are held by a Portfolio at the time of the sale. These
securities may not be sold during the maturity of the call option and may not be
the subject of a securities loan.
There is no limitation on the value of the options that may be purchased or
written by a Portfolio. However, the strike prices of the securities options,
together with the strike prices of the securities that underlie other securities
options already purchased or granted for the account of each Portfolio, may not
exceed 20% of net assets of the Portfolio. See "Risk Factors." Options on
securities may only be purchased or granted to a third party to the extent that
the strike prices of such options, together with the strike prices of options on
securities of the same issuer already purchased by or granted for the account of
a Portfolio, do not exceed 10% of the net assets of the Portfolio. Options on
securities may only be written (sold) to the extent that the strike prices of
such options, together with the strike prices of options on securities of the
same issuer already written for the account of a Portfolio, do not exceed 2% of
the net assets of the Portfolio. When an option transaction is offset by a back-
to-back transaction (e.g., where a Portfolio writes a put option on a security
and purchases a put option on 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. Each Portfolio other than the Top 50
US Portfolio may enter into transactions for non-hedging purposes only to the
extent that (1) the underlying contract values, together with the contract
values of any instrument then held by the Portfolio for non-hedging purposes, do
not exceed in the aggregate 20% of the net assets of the Portfolio and (2) such
instruments relate to categories of assets which the Portfolio is permitted to
hold. The Top 50 US Portfolio does not limit its purchase or sale of stock index
or interest rate futures contracts, put or call options on futures, options on
securities indices and warrants for other than hedging purposes.
Currency Forward Contracts, Option Rights and Warrants on Currencies and
Currency Futures Contracts (Each Portfolio Except Top 50 US Portfolio)
Each Portfolio, except Top 50 US Portfolio, may enter into foreign currency
transactions to hedge currency risks associated with the assets of the Portfolio
denominated in foreign currencies. A Portfolio may purchase or sell foreign
currency contracts for forward delivery, purchase option rights for the purchase
or sale of currencies or currency futures contracts or warrants which entitle
the holder to the right to purchase or sell currencies or currency futures
contracts or to receive payment of a difference, which is measured by the
performance of currencies or currency futures contracts, provided that these
option rights and warrants are admitted to official listing on an exchange.
Each Portfolio does not currently intend to engage in foreign currency
transactions as an investment strategy. However, each Portfolio (except Top 50
US Portfolio)may enter into forward contracts to hedge against changes in
foreign currency exchange rates that would affect the value of existing
investments denominated or principally traded in a foreign currency.
Securities Loans
Subject to applicable investment restrictions, each Portfolio is permitted to
lend its securities. These loans may not exceed 33-1/3% of each Portfolio's
total assets. The Portfolios may pay reasonable administrative and custodial
fees in connection with the loan of securities. The following conditions will be
met whenever portfolio securities of a Portfolio are loaned: (1) the Portfolio
must receive at least 100% collateral from the borrower; (2) the borrower must
increase such collateral whenever the market value of the securities loaned
rises above the level of the collateral; (3) the Portfolio must be able to
terminate the loan at any time; (4) the Portfolio must receive reasonable
interest on the loan, as well as payments in respect of any dividends, interest
or other distributions on the loaned securities, and any increase in market
value; (5) the Portfolio may pay only reasonable custodian and finder's fees in
connection with the loan; and (6) while voting rights on the loaned securities
may pass to the borrower, the Portfolio must terminate the loan and regain the
right to vote the securities if a material event conferring voting rights and
adversely affecting the investment occurs. In addition, a Portfolio will
consider all facts and circumstances, including the creditworthiness of the
borrowing financial institution. No Portfolio will lend its securities to any
officer, Trustee, Director, employee or other affiliate of the Corporation or
the Portfolio Trust, the Manager, the Adviser or the Distributor, unless
otherwise permitted by applicable law.
Each Portfolio may lend its securities on a demand basis provided the market
value of the assets transferred in securities loans together with the market
value of the securities already transferred as a securities loan for the
Portfolio's account to the same borrower does not exceed 10% of total net assets
of the Portfolio.
Borrowing
Each Portfolio may borrow money from banks for temporary or short-term purposes
and then only in amounts not to exceed 10% of each Portfolio's, except the Top
50 US Portfolio's, total assets at the time of such borrowing. The Top 50 US
Portfolio may take up short-term loans up to a limit of one-third of the
Portfolio's total assets.
Warrants
Each Portfolio may purchase warrants in value of up to 10% of the Portfolio's
net assets. The warrants in which the Portfolios invest are a type of security
that entitles the holder to buy a fixed amount of securities of such issuer at a
specified price at a fixed date or for a fixed period of time (which may be in
perpetuity) or to demand settlement in cash based on the price performance of
the underlying security. If the market price of the underlying security is below
the exercise price set forth in the warrant on the expiration date, the warrant
will expire worthless.
Warrants do not entitle the holder to dividends or voting rights with respect to
the underlying securities and do not represent any rights in the assets of the
issuing company. Also the value of the warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have value if it
is not exercised prior to the expiration date.
Convertible Securities
The convertible securities in which the Portfolios may invest include any debt
securities or preferred stock which may be converted into common stock or which
carry the right to purchase common stock. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
Short-Term Trading
Each Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. A Portfolio may take advantage of short-term trading
opportunities that are consistent with its objective. To the extent a Portfolio
engages in short-term trading, it may realize short-term capital gains or losses
and incur increased transaction costs. See "Taxes" below.
Investment Restrictions
The investment objective of each Fund and each Portfolio, together with the
fundamental investment restrictions described below and in the Statement of
Additional Information, except as noted, are deemed fundamental policies, i.e.,
they may be changed only with the approval of the holders of a majority of the
outstanding voting securities of a Fund and its corresponding Portfolio. Each
Fund has the same investment restrictions as its corresponding Portfolio, except
that each Fund may invest all of its investable assets in the corresponding
Portfolio. References below to the Portfolios' investment restrictions also
include the Funds' investment restrictions. Any other investment policies of the
Portfolios and the Funds described herein or in the Statement of Additional
Information are not fundamental and may be changed without shareholder approval.
Fundamental Investment Restrictions
Each Portfolio is classified as "non-diversified" under the 1940 Act, which
means that each corresponding Fund is not limited by the 1940 Act with respect
to the portion of its assets which may be invested in securities of a single
company (although certain diversification requirements are in effect imposed by
the Internal Revenue Code of 1986, as amended (the "Code")). The possible
assumption of large positions in the securities of a small number of companies
may cause the performance of a Fund to fluctuate to a greater extent than that
of a diversified investment company as a result of changes in the financial
condition or in the market's assessment of the companies.
Top 50 World Portfolio will invest at least 65% of its total assets in equity
securities. Top 50 Europe Portfolio will invest at least 65% of its total
assets in the equity securities of issuers located in European countries. Top
50 Asia Portfolio will invest at least 65% of its total assets in the equity
securities of issuers with a domicile or business focus in Asian countries. Top
50 US Portfolio will invest at least 65% of its total assets in the equity
securities of issuers located in the United States.
No Portfolio may purchase securities or other obligations of issuers conducting
their principal business activity in the same industry if its investments in
such industry would equal or exceed 25% of the value of the Portfolio's total
assets, provided that the foregoing limitation shall not apply to investments
in securities issued by the U.S. Government or its agencies or
instrumentalities.
Non-Fundamental Investment Restrictions
Each Portfolio generally will not borrow money. Each Portfolio may not issue
senior securities except as permitted by the 1940 Act or any rule, order or
interpretation thereunder. Each Portfolio, except the Top 50 US Portfolio, may
not invest more than 10% of its net assets in the securities of any one issuer
or invest more than 40% of its net assets in the aggregate in the securities of
those issuers in which the Portfolio has invested in excess of 5% but not more
than 10% of its net assets.
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see "Investment
Restrictions" in the Statement of Additional Information.
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RISK FACTORS
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Equity Investments
Because the assets of each Portfolio are invested primarily in equity
securities, the Portfolios are subject to market risk and the risks associated
with the individual companies in which the Portfolios invest, meaning that stock
prices in general may decline over short or extended periods of time. As with
any equity-based investment company, the investor should be aware that
unfavorable economic conditions can adversely affect corporate earnings and
cause declines in stock prices.
Foreign Investments (Each Portfolio Except Top 50 US Portfolio)
Each Portfolio, except the Top 50 US Portfolio, invests primarily in foreign
securities. Investment in securities of foreign issuers involves somewhat
different investment risks from those affecting securities of U.S. domestic
issuers. There may be limited publicly available information with respect to
foreign issuers, and foreign issuers are not generally subject to uniform
accounting, auditing and financial standards and requirements comparable to
those applicable to U.S. domestic companies. Dividends and interest paid by
foreign issuers may be subject to withholding and other foreign taxes (such as
capital gain taxes) which may decrease the net return on foreign investments as
compared to dividends and interest paid to a Portfolio by U.S. domestic
companies.
Investors should realize that the value of a Portfolio's investments in foreign
securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) currency exchange control or tax regulations in those foreign
countries. In addition, changes in government administrations or economic or
monetary policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect a
Portfolio's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Portfolios must be made in
compliance with foreign currency restrictions and tax laws restricting the
amounts and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic securities exchanges. Accordingly, the Portfolios'
foreign investments may be less liquid and their prices may be more volatile
than comparable investments in securities of U.S. companies. Moreover, the
settlement periods for foreign securities, which are often longer than those for
securities of U.S. issuers, may affect portfolio liquidity. In buying and
selling securities on foreign exchanges, purchasers normally pay fixed
commissions that are generally higher than the negotiated commissions charged in
the United States. In addition, there is generally less government supervision
and regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Since each Portfolio's investments in foreign securities involve foreign
currencies, the value of the Portfolio's assets as measured in U.S. dollars may
be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations, including currency blockage. Because the Top 50
Europe Portfolio does not presently intend to engage in currency transactions to
hedge currency risks, this Portfolio may be more exposed to the aforementioned
currency risks. See "Foreign Currency Exchange Transactions" in the Statement of
Additional Information.
Certain of the risks associated with foreign investments are heightened for the
Top 50 Asia Portfolio and Top 50 World Portfolio, which invest in certain Asian
countries. In some cases, political uncertainty and political corruption in such
countries could threaten to reverse favorable trends toward market and economic
reform, privatization and removal of trade barriers, and further disruptions in
Asian securities markets could result. In addition, certain Asian countries have
managed currencies which are maintained at artificial levels relative to the
U.S. dollar rather than at levels determined by the market. This type of system
can lead to sudden and large adjustments in the currency which, in turn, may
have a disruptive and negative effect on foreign investors. For example, in 1997
the Thai baht lost 46.75% of its value against the U.S. dollar. A number of
Asian companies are highly dependent on foreign loans for their operation. In
1997, several Asian countries were forced to negotiate loans from the
International Monetary Fund and other supranational organizations which impose
strict repayment term schedules and require significant economic and financial
restructuring. There can be no assurance that such restructurings will not have
an adverse effect on individual companies, or securities markets, in which the
Top 50 Asia Portfolio or the Top 50 World Portfolio is invested. The Top 50 Asia
Portfolio may invest in Hong Kong, which reverted to Chinese administration in
1997. Investments in Hong Kong may be subject to expropriation, nationalization
or confiscation, and to the risk that the Hong Kong dollar will be devalued. The
Corporation cannot predict the effects of a possible loss of investor confidence
in the currency or stock market of Hong Kong.
Emerging Markets (Each Portfolio Except Top 50 US Portfolio)
Investments in securities of issuers in emerging markets countries may involve a
high degree of risk and many may be considered speculative. Investments in
developing and emerging markets may be subject to potentially greater risks than
those of other foreign issuers. These risks include: (i) the small current size
of the markets for such securities and the low volume of trading, which result
in less liquidity and in greater price volatility; (ii) certain national
policies which may restrict the Portfolio's investment opportunities, including
restrictions on investment in issuers or industries deemed sensitive to national
interests; (iii) foreign taxation; (iv) the absence, until recently, of a
capital market structure or market oriented economy as well as issuers without a
long period of successful operations; (v) the possibility that recent favorable
economic developments may be slowed or reversed by unanticipated political or
social events in such countries or their neighboring countries; and (vi) greater
risks of expropriation, confiscatory taxation, nationalization, and less social,
political and economic stability.
Fixed Income Securities
The value of fixed income securities generally goes down when interest rates go
up, and vice versa. Furthermore, the value of fixed income securities may vary
based on anticipated or potential changes in interest rates. Changes in interest
rates will generally cause bigger changes in the prices of longer-term
securities than in the prices of shorter-term securities.
Prices of fixed income securities fluctuate based on changes in the actual and
perceived creditworthiness of issuers. The prices of lower rated securities
often fluctuate more than those of higher rated securities. It is possible that
some issuers will be unable to make required payments on fixed income
securities.
Futures, Options and Warrants
Each Portfolio's successful use of futures, options and warrants depends on the
ability of the Adviser to predict the direction of the market or, in the case of
hedging transactions, the correlation between market movements and movements in
the value of the Portfolio's assets, and is subject to various additional risks.
The investment techniques and skills required to use futures, options and
warrants successfully are different from those required to select equity
securities for investment. The correlation between movements in the price of the
futures contract, option or warrant and the price of the securities or financial
instruments being hedged is imperfect and the risk from imperfect correlation
increases, with respect to stock index futures, options and warrants, as the
composition of a Portfolio's portfolio diverges from the composition of the
index underlying such stock index futures, options or warrants. If a Portfolio
has hedged portfolio securities by purchasing put options or selling futures
contracts, the Portfolio could suffer a loss which is only partially offset or
not offset at all by an increase in the value of the Portfolio's securities. As
noted, a Portfolio may also enter into transactions in future contracts, options
and warrants for other than hedging purposes (subject to applicable law),
including speculative transactions, which involve greater risk. In particular,
in entering into such transactions, a Portfolio may experience losses which are
not offset by gains on other portfolio positions, thereby reducing its gross
income. In addition, the markets for such instruments may be volatile from time
to time, which could increase the risk incurred by a Portfolio in entering into
such transactions. The ability of a Portfolio to close out a futures, options or
warrants position depends on a liquid secondary market.
The use of futures contracts potentially exposes the Portfolios to the effects
of "leveraging," which occurs when futures are used so a Portfolio's exposure to
the market is greater than it would have been if the Portfolio had invested
directly in the underlying instruments. Leveraging increases a Portfolio's
potential for both gain and loss. As noted above, the Portfolios intend to
adhere to certain policies relating to the use of futures contracts, which
should have the effect of limiting the amount of leverage by the Portfolios. See
"Futures and Option Contracts" in the Statement of Additional Information.
Geographic Investment Emphasis
From time to time, due to investment opportunities perceived by the Manager to
be attractive, a Portfolio or a Fund may invest a relatively larger portion of
its assets in the issuers of securities domiciled, or principally traded, in one
or more individual countries. In the event that such geographic investment
emphasis occurs, the relevant Portfolio or Fund could be subject to greater risk
due to unanticipated, and negative, economic events and/or market action in such
country or countries.
Local Securities Markets
The German Securities Markets
Equity securities trade on the country's eight regional stock exchanges of which
Frankfurt accounted for approximately 78% of the total volume in 1997.
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 40.83% in 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 1997 represented 28.7% of total trading volume on the German
stock exchanges: Deutsche Bank AG with DM 254.7 billion, Daimler Benz AG with DM
233.7 billion, Siemens AG with DM 224.7 billion, Volkswagen AG with DM 192.3
billion, and Bayer AG with DM 145.1 billion.
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MANAGEMENT OF THE CORPORATION
AND THE PORTFOLIO TRUST
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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 investment adviser of each Portfolio except the Top 50 US
Portfolio. DFM has retained the services of DMGIM as investment adviser of the
Top 50 US Portfolio.
Manager
The Portfolio Trust has retained the services of DFM as investment manager to
each Portfolio. DFM, with principal offices at 31 West 52nd Street, New York,
New York 10019, is a Delaware corporation and registered investment adviser
under the Advisers Act of 1940.
DFM is a wholly-owned subsidiary of Deutsche Fonds Holding GmbH ("DFH"), a
company with limited liability organized under the laws of Germany and a
consolidated subsidiary of Deutsche Bank AG, a major global banking institution.
With total assets the equivalent of $582 billion and 76,100 employees as of
year-end 1997, Deutsche Bank AG is one of Europe's largest universal banks. It
is engaged in a wide range of financial services, including retail and
commercial banking, investment banking and insurance. Deutsche Bank AG'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 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 $67.5 billion as of December 31, 1997. DFH and its subsidiaries
employ approximately 560 professionals and is one of the largest mutual fund
operators in Europe based on assets under management.
The primary subsidiary of DFH is DWS. Founded in 1956, it is the largest mutual
fund company in Germany, holding a 25% share of the German mutual fund market
based on assets under management as of December 1997. DFH and its subsidiaries
are known in the financial market as "DWS Group, Investmentgroup of Deutsche
Bank."
DFH subsidiaries have received widespread industry recognition in Europe. For
example, Micropal, Europe's leading fund rating organization, has accorded DWS
the following awards: 1994: best fund manager for 1-, 3-, and 5-year periods;
1995: best fund manager for 1-, 3-, and 5-year periods; 1996: best fund manager
for 3- and 5-year periods; 1997: best fund manager for 3- and 5-year periods.
These awards were given to fund managers having 10 or more funds registered for
sale in Germany, based on the manager with the highest number of funds ranked
first within various categories of investment objective defined by Micropal.
Fund rankings are based on above-average performance in Deutsche Mark ("DM")
terms and below-average volatility.
Subject to the overall supervision of the Portfolio Trust's Trustees, DFM is
responsible for the day-to-day investment decisions, the execution of portfolio
transactions and the general management of each Portfolio's investments and
provides certain supervisory services. Under its investment management agreement
with the Portfolio Trust (the "Management Agreement"), DFM is permitted, subject
to the approval of the Board of Trustees of the Portfolio Trust, to delegate to
a third party responsibility for management of the investment operations of each
Portfolio. DFM has delegated this responsibility to the Adviser. DFM retains
overall responsibility, however, for supervision of the investment management
program for each Portfolio. See "Manager" in the Statement of Additional
Information.
As compensation for the services rendered and related expenses borne by DFM
under the Management Agreement with the Portfolio Trust with respect to each
Portfolio, DFM receives a fee from each Portfolio, which is computed daily and
paid monthly, equal to 1.00% of the average daily net assets of each Portfolio,
except Top 50 US Portfolio, and equal to 0.85% of the average daily net assets
of Top 50 US Portfolio on an annualized basis for the Portfolio's then-current
fiscal year. See also "Expenses."
Adviser
Pursuant to an investment advisory agreement ("Advisory Agreement") between DFM
and the relevant Adviser, the Adviser provides investment advice and portfolio
management services to each Portfolio. Subject to the overall supervision of
DFM, the Adviser conducts the day-to-day investment decisions of each Portfolio,
arranges for the execution of portfolio transactions and furnishes a continuous
investment program for each Portfolio.
Each Adviser is an SEC-registered investment adviser and an indirect subsidiary
of Deutsche Bank AG. The offices of the DWS Adviser are located at Grueneburgweg
113-115, 60323 Frankfurt am Main, Germany. The offices of the DMGIM Adviser are
located at 31 West 52nd Street, New York, New York 10019.
For these services, the Adviser receives from DFM a fee, which is computed daily
and may be paid monthly, equal to 0.75% of the average daily net assets of each
Portfolio except Top 50 US Portfolio and equal to 0.60% of the average daily net
assets of Top 50 US Portfolio on an annualized basis for the Portfolio's
then-current fiscal year.
Portfolio Management
Klaus Kaldemorgen is the senior portfolio manager for the Top 50 Asia Portfolio
and Deutsche Top 50 World Portfolio. Mr. Kaldemorgen also serves as senior
portfolio manager for the Top 50 Asian and Top 50 Welt, German registered mutual
funds with the same investment objective, policies and restrictions as the
respective Portfolio. He has held this position since the inception of these
funds in April 1996, and January 1997, respectively. Mr. Kaldemorgen has 16
years experience as an investment manager, joining the DWS Group in 1982. Mr.
Kaldemorgen is Senior Investment Officer, head of the global equity team, DWS
Group, Investment Group of Deutsche Bank, supervising funds holding assets under
management of DM 13.2 billion ($7.2 billion) as of January 30, 1998.
Klaus Martini and Elisabeth Weisenhorn are co-senior portfolio managers for the
Top 50 Europe Portfolio. Mr. Martini joined the DWS Group in 1984, where he has
managed European stock funds since 1988. Mr. Martini also serves as senior
portfolio manager for Top 50 Europa, a German registered mutual fund with the
same investment objective, policies, and restrictions as the Top 50 Europe
Portfolio. He is Senior Investment Officer, head of the European equity team,
supervising funds holding assets under management of DM 5.1 billion ($2.8
billion) as of January 30, 1998. Ms. Weisenhorn also serves as the senior
portfolio manager for the Investa Portfolio and the Provesta Portfolio,
additional series of the Portfolio Trust. Ms. Weisenhorn has 13 years of
experience as an investment manager and joined the DWS Group in 1985. She is
Senior Investment Officer, head of the German equity team, supervising funds
holding assets under management of DM 13.9 billion ($7.7 billion) as of January
30, 1998. Mr. Martini and Ms. Weisenhorn are based at DWS Group's office in
Frankfurt, Germany.
James E. Moltz, the chief investment officer of Deutsche Morgan Grenfell Inc.,
is the senior portfolio manager of the Top 50 US Portfolio. Mr. Moltz is also
the chief investment strategist of Deutsche Morgan Grenfell Inc., and previously
served as chief investment strategist for 20 years with an acquired firm, C. J.
Lawrence Inc. He was also chairman and president of C. J. Lawrence Inc. from
1973 to 1994. Mr. Moltz is a former Director of both the New York Stock Exchange
and the Securities Industry Association. He is a member of the New York Society
of Security Analysts and a Chartered Financial Analyst.
Administrator
Under a master agreement for administration services with the Corporation,
Federated Services Company serves as Administrator to the Funds. In connection
with its responsibilities as Administrator, Federated Services Company, among
other things (i) prepares, files and maintains the Funds' governing documents,
registration statements and regulatory documents; (ii) prepares and coordinates
the printing of publicly disseminated documents; (iii) monitors declaration and
payment of dividends and distributions; (iv) projects and reviews the Funds'
expenses; (v) performs internal audit examinations; (vi) prepares and
distributes materials to the Directors of the Corporation, (vii) coordinates the
activities of all service providers; (viii) monitors and supervises collection
of tax reclaims; and (ix) prepares shareholder meeting materials.
As Administrator, Federated Services Company receives a fee from each Fund,
which is computed daily and may be paid monthly, at the annual rate of 0.065% of
the average daily net assets of each Fund up to $200 million and 0.0525% of the
average daily net assets of each Fund greater than $200 million for the Fund's
then-current fiscal year. The Administrator will receive a minimum fee of
$75,000 per Fund annually, except that during the first two years of the
agreement, a minimum aggregate fee for each Portfolio, corresponding Fund and
any other fund investing in the Portfolio, taken together, of $75,000 for the
first year of the Fund's operation and $125,000 for the second year will be paid
to the Operations Agent and the Administrator.
Operations Agent
Under an operations agency agreement with the Portfolio Trust, Federated
Services Company serves as Operations Agent to the Portfolio. In connection with
its responsibilities as Operations Agent, Federated Services Company, among
other things, (i) prepares governing documents, registration statements and
regulatory filings; (ii) performs internal audit examinations; (iii) prepares
expense projections; (iv)prepares materials for the Trustees of the Portfolio
Trust, (v) coordinates the activities of all service providers;(vi) conducts
compliance training for the Adviser; (vii) prepares investor meeting materials;
and (viii) monitors and supervises collection of tax reclaims.
As Operations Agent of the Portfolios, Federated Services Company receives a fee
from each Portfolio, which is computed daily and paid monthly, at the annual
rate of 0.035% of the average daily net assets of each Portfolio for the
Portfolio's then-current fiscal year. The Operations Agent of the Portfolios
will receive a minimum fee of $60,000 per Portfolio annually, except that during
the first two years of the agreement minimum aggregate fees for each Portfolio,
corresponding Fund and any other fund investing in the Portfolio, taken
together, of $75,000 for the first year of the Portfolio's operation and
$125,000 for the second year will be paid to the Operations Agent and the
Administrator.
Administrative Agent
Under an administration agreement with the Portfolio Trust, IBT (Cayman)
provides certain services to the Portfolios, including (i) filing and
maintaining the governing documents, registration statements and other
regulatory filings; (ii) maintaining a telephone line; (iii) approving annual
expense budgets; (iv) authorizing expenses; (v) distributing materials to the
Trustees of the Portfolio Trust; (vi) authorizing dividend distributions; (vii)
maintaining books and records; (viii) filing tax returns; and (ix) maintaining
the investor register.
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 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-5829. It is a
New York corporation organized on October 26, 1993, and is the principal
distributor for a number of investment companies. Edgewood is a subsidiary of
Federated Investors 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 Class A shares by employees participating in qualified
or non-qualified employee benefit plans or other programs where (i) the
employers or affiliated employers maintaining such plans or programs have a
minimum of 250 employees eligible for participation in such plans or programs,
or (ii) such plan's or program's aggregate investment in the Deutsche Funds or
certain other products made available by the Distributor to such plans or
programs is $1,000,000 or more ("Eligible Benefit Plans"). Shares in the
Deutsche Funds then held by Eligible Benefit Plans will be aggregated to
determine the fee payable. DFM reserves the right to cease paying these fees at
any time. DFM may pay such fees from its own funds in addition to amounts
received from the Funds under the Service Plan, including past profits or any
other source available to it. Such payments are subject to a reclaim from the
Financial Intermediary should the assets leave the plan or program within 12
months after purchase.
Furthermore, with respect to Class A shares 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% and
2.35% of the average annual net assets of Class A shares and Class B shares,
respectively, of the Top 50 World, Top 50 Europe and Top 50 Asia and not more
that 1.50% and 2.25% of the average annual net assets of Class A shares and
Class B shares, respectively, of Top 50 US. There is no assurance that DFM will
continue this reimbursement beyond the specified period.
Expenses of Class A Shares and Class B Shares
Holders of Class A shares and Class B shares bear their allocable portion of a
Fund's expenses along with their allocable share of the corresponding
Portfolio's operating expenses. At present, the only expenses which are
allocated specifically to Class A shares and Class B shares as classes are
expenses under the Distribution Plan and expenses under the Service Plan.
However, the Directors reserve the right to allocate certain other expenses to
holders of Class A shares and Class B shares ("Class Expenses"). In any case,
Class Expenses would be limited to: distribution fees; shareholder services
fees; transfer agent fees as identified by the Transfer Agent as attributable to
holders of Class A shares and Class B shares; printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders as attributable to holders of
Class A shares and Class B shares; registration fees paid to the Securities and
Exchange Commission and to state securities commissions as attributable to
holders of Class A shares and Class B shares; expenses related to administrative
personnel and services as required to support holders of Class A shares and
Class B shares; legal fees relating solely to Class A shares or Class B shares;
and Directors' fees incurred as a result of issues related solely to Class A
shares or Class B shares.
Portfolio Brokerage
The estimated annual portfolio turnover rate for the Top 50 World Portfolio, Top
50 Europe Portfolio, Top 50 Asia Portfolio and Top 50 US Portfolio is generally
not expected to exceed 80%, 80%, 100% and 80%, respectively. A 100% annual
turnover rate would occur, for example, if all portfolio securities (excluding
short-term obligations) were replaced once in a period of one year, or if 10% of
the portfolio securities were replaced ten times in one year. The amount of
brokerage 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.
From commencement of operations through February 28, 1998, the Top 50 World
Portfolio, Top 50 Europe Portfolio, Top 50 Asia Portfolio, and Top 50 US
Portfolio paid the following aggregate brokerage commissions, respectively:
$25,444, $16,435, $166,945, and $7,723.
- --------------------------------------------------------------------------------
INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
Each Fund offers investors two classes of shares that carry sales charges and
contingent deferred sales charges in different forms and amounts and which bear
different levels of expenses.
Class A Shares
An investor who purchases Class A shares of a Fund pays a maximum sales charge
of 5.50% at the time of purchase. Certain purchases of Class A shares are not
subject to a sales charge. See "Purchase of Shares--Investing in Class A
Shares." As a result, Class A shares are not subject to any charges when they
are redeemed (except for special programs offered under "Purchase of Shares--
Purchases with Proceeds From Redemptions of Unaffiliated Investment Companies"
and except for shares purchased without a sales charge that are redeemed within
one year of purchase as described under "Contingent Deferred Sales Charge--Class
A Shares"). Certain purchases of Class A shares qualify for reduced sales
charges. See "Purchase of Shares--Reducing or Eliminating the Sales Charge."
Class A shares have no conversion feature.
Class B Shares
Class B shares of each Fund are sold without an initial sales charge, but are
subject to a contingent deferred sales charge in accordance with the following
schedule:
<TABLE>
<CAPTION>
Contingent
Year of Redemption Deferred
After Purchase Sales Charge
- ----------------------------- ------------
<S> <C>
First 5.00%
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>
Class 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
("NYSE") is open. Shares of a Fund may be purchased as described below, either
through a Financial Intermediary (such as a bank or broker/dealer which has a
sales agreement with the Distributor) or by sending a wire or a check directly
to the Fund, with a minimum initial investment of $5,000 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 and may separately charge a fee for Fund transactions.)
In connection with any sale, the Distributor may from time to time offer certain
items of nominal value to any shareholder or investor. The Funds reserve the
right to reject any purchase request. An account must be established through a
Financial Intermediary or by completing, signing, and returning the new account
form available from the Funds before shares can be purchased.
Investing in Class A Shares
Class A shares of each Fund are sold at their net asset value next determined
after an order is received, plus a sales charge as follows:
<TABLE>
<CAPTION>
Sales Charge
as a Percentage of Dealer
--------------------------------- Concession as
Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
- --------------------- -------- -------- ----------------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less
than $100,000 4.50% 4.71% 3.75%
$100,000 but less
than $250,000 3.50% 3.63% 2.75%
$250,000 but less
than $500,000 2.50% 2.56% 2.00%
$500,000 but less
than $1 million 2.00% 2.04% 1.75%
$1 million but less
than $2 million None None 1.00%*
$2 million but less
than $5 million None None 0.80%
$5 million but less
than $50 million None None 0.50%*
$50 million but less
than $100 million None None 0.25%*
$100 million or more None None 0.15%*
</TABLE>
*See "Dealer Concession" below.
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 acts as custodian for a minor
child;
3. Registered representatives, bank trust officers, certified financial
planners and other employees (and their immediate families) of investment
professionals who have entered into a supplemental agreement with the
Distributor;
4. IRA Rollover accounts sponsored by Deutsche Morgan Grenfell Inc., Deutsche
Bank Trust Company, or any of their affiliates as administrator, trustee or
custodian, provided that the distribution proceeds are made from a qualified
retirement plan or from a 403(b)(7) plan that is sponsored, administered or
custodied by Deutsche Bank Trust Company or any of its affiliates, and
provided that, at the time of such distribution, such qualified retirement
plan or 403(b)(7) plan met the requirements of an Eligible Benefit Plan and
all or a portion of such plan's assets were invested in the Deutsche Funds
or certain other products made available by the Distributor to such
plans;
5. As part of an Eligible Benefit Plan having a minimum of 250 eligible
employees or a minimum of $1,000,000, or such lesser amount as may be
determined by the Distributor, invested in Deutsche Funds;
6. Investor accounts through certain broker-dealers and other Financial
Intermediaries that have entered into supplemental agreements with the
Distributor, which include a requirement that such shares be sold for the
benefit of clients participating in a "wrap account" or similar program
under which such clients pay a fee to the broker-dealer or other Financial
Intermediary, or such other accounts to which the broker-dealer or other
Financial Intermediary charges an asset management fee;
7. Investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of such investment
advisers or financial planners who place trades for their own accounts if
the accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker or agent;
8. Retirement and deferred compensation plans and trusts used to fund those
plans, including, but not limited to, those defined in section 401(a),
403(b), or 457 of the Code and "rabbi trusts;"
9. Qualified separate accounts maintained by an insurance company pursuant to
the laws of any State or territory of the United States;
10. Trust companies and bank trust departments, including Deutsche Bank Trust
Company and its affiliates, initially investing at least $100,000 of assets
held in a fiduciary, agency, advisory, custodial or similar capacity on
behalf of any one of their investor clients;
11. Accounts investing $100,000 or more of (1) a State or territory of the
United States, county, city or instrumentality thereof, (2) charitable
organizations as defined under Section 501(c)(3) of the Code, and (3)
charitable remainder trusts or life income pools as defined under Section
501(c)(3) of the Code.
Quantity Discounts and Accumulated Purchases
Larger purchases reduce the sales charge paid. A Fund will combine purchases of
Class A shares made on the same day by the investor, the investor's spouse, and
the investor's children under age 21 when it calculates the sales charge. In
addition, the sales charge, if applicable, is reduced for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Class A shares is made in a Fund, the Fund will
consider the previous purchases still invested in the Fund. For example, if a
shareholder already owns Class A shares having a current value at the public
offering price of $30,000 and the shareholder purchases $20,000 more at the
current public offering price, the sales charge on the additional purchase
according to the schedule now in effect would be 4.50%, not 5.50%.
To receive the sales charge reduction, the Distributor must be notified by the
shareholder in writing or by the shareholder's Financial Intermediary at the
time the purchase is made that Class A shares are already owned or that
purchases are being combined. A Fund will reduce the sales charge after it
confirms the purchases.
Concurrent Purchases
For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of Class A shares of two or more of
the Deutsche Funds, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in Class A shares of one
of the Deutsche Funds with a sales charge, and $20,000 in another Fund, the
sales charge would be reduced to reflect a $50,000 purchase.
To receive this sales charge reduction, the Distributor must be notified by the
shareholder in writing or by the shareholder's Financial Intermediary at the
time the concurrent purchases are made. A Fund will reduce the sales charge
after the purchases are confirmed.
Letter of Intent
If a shareholder intends to purchase at least $50,000 of Class A shares of the
Deutsche Funds (excluding the Deutsche U.S. Money Market Fund) over the next 13
months, the sales charge may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales charge adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the Custodian to hold in escrow (in shares) up to the maximum
sales charge of the total amount intended to be purchased until such purchase is
completed.
The shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed shares may be redeemed in order to realize the
difference in the sales charge.
While this letter of intent will not obligate the shareholder to purchase
shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any shares of any Deutsche Fund,
excluding the Deutsche U.S. Money Market Fund, will be aggregated to provide a
purchase credit towards fulfillment of the letter of intent. Prior trade prices
will not be adjusted.
Reinvestment Privilege
If Class A shares in a Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the next-
determined net asset value without any sales charge. The Distributor must be
notified by the shareholder in writing or by the shareholder's Financial
Intermediary of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems Class A shares in a Fund, there may be tax consequences. See
"Tax Treatment of Reinvestments" below.
Purchases with Proceeds from Redemptions of Unaffiliated Investment Companies
Investors may purchase Class A shares at net asset value, without a sales
charge, with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales charge or commission
and were not distributed by the Distributor. The purchase must be made within 60
days of the redemption, and the Distributor must be notified by the investor in
writing, or by the investor's Financial Intermediary, at the time the purchase
is made. From time to time, the Distributor may offer dealers compensation for
shares purchased under this program. If shares are purchased in this manner,
redemptions of these shares will be subject to a contingent deferred sales
charge for one year from the date of purchase. Shareholders will be notified
prior to the implementation of any special offering as described above.
Tax Treatment of Reinvestments
Generally, a reinvestment of the proceeds of a redemption of shares in a Fund or
an unaffiliated investment company will not alter the federal income tax status
of any capital gain realized on the redemption of the shares. However, any loss
on the disposition of the shares in a Fund will be disallowed to the extent
shares of the same Fund are purchased within a 61day 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 a Financial Intermediary (such as a bank or an investment
dealer) to place an order to purchase shares. Orders placed through a Financial
Intermediary are considered received when the Fund is notified of the purchase
order. Shares will not be issued in respect of such orders until payment is
converted into federal funds. Purchase orders through a registered broker/dealer
must be received by the broker before 4:00 p.m. (U.S. Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (U.S. Eastern time) in
order for shares to be purchased at that day's price. Purchase orders through
other Financial Intermediaries must be received by the Financial Intermediary
and transmitted to the Fund before 4:00 p.m. (U.S. Eastern time) in order for
shares to be purchased at that day's price. With respect to the Top 50 US, any
orders must be received and transmitted to the Fund by the close of regular
trading on the NYSE when such closing occurs before 4:00 p.m. (U.S. Eastern
time). It is the Financial Intermediary's responsibility to transmit orders
promptly.
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; and Nominee or Institution Name. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Purchasing Shares by Check
Once a Fund account has been established, shares may be purchased by sending a
check made payable to the name of the specific Fund (designate class of shares
and account number) to: Deutsche Funds, Inc., P.O. Box 8612, Boston, MA 02266-
8612. Please include an account number on the check. Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received).
- --------------------------------------------------------------------------------
SPECIAL PURCHASE FEATURES
- --------------------------------------------------------------------------------
Systematic Investment Program
Once a Fund account has been opened with the minimum initial investment,
shareholders may add to their investment on a regular basis in a minimum amount
of $100. Under this program, funds may be automatically withdrawn periodically
from the shareholder's checking account at an Automated Clearing House ("ACH")
member and invested in a Fund at the net asset value next determined after an
order is received by the Fund, plus the sales charge, if applicable.
Shareholders should contact their Financial Intermediary or the Funds directly
to participate in this program.
Retirement Plans
Fund shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Funds and consult a tax adviser.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
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Class A Shares
Class A shareholders may exchange all or some of their shares for ClAss A shares
of other Deutsche Funds at relative net asset value. None of the Deutsche Funds
imposes any additional fees on exchanges. Shareholders in certain other Deutsche
Funds may exchange all or some of their shares for Class A shares.
Class B Shares
Class B shareholders may exchange all or some of their shares for Class B shares
of other Deutsche Funds. Contact your Financial Intermediary regarding the
availability of other Class B shares in the Deutsche Funds. Exchanges are made
at net asset value without being assessed a contingent deferred sales charge on
the exchanged shares. To the extent that a shareholder exchanges shares for
Class B shares of other Deutsche Funds, the time for which exchanged-from shares
were held will be credited against the time for which the exchanged-for shares
are required to be held for purposes of satisfying the applicable holding period
in respect of the contingent deferred sales charge. For more information, see
"Contingent Deferred Sales Charge."
Please contact your Financial Intermediary directly or the Distributor for
information on and prospectuses for the Deutsche Funds into which your shares
may be exchanged free of charge.
Requirements for Exchange
Shareholders using this privilege must exchange shares having a net asset value
equal to the minimum investment requirements of the Deutsche Fund into which the
exchange is being made. The shareholder must receive a Prospectus of the
Deutsche Fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
proceeds invested in the same class of shares of the other Fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified in advance of the modification or termination of the exchange
privilege.
Tax Consequences
An exchange will be treated as a taxable sale for federal income tax purposes
and any gain or loss realized will be subject to the rules applicable to
reinvestments (described above under "Tax Treatment of Reinvestments"). See
"Taxes" below for additional information.
Making an Exchange
Instructions for exchanging may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of a Fund may have
difficulty in making exchanges by telephone through brokers and other Financial
Intermediaries during times of drastic economic or market changes. If a
shareholder cannot contact a broker or Financial Intermediary by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to: Deutsche Funds, Inc., c/o Federated Shareholder Services Company, 1099
Hingham Street, Rockland, MA 02370-3317.
Telephone Instructions
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with a Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed, the responsible party may be liable for losses due to
unauthorized or fraudulent telephone instructions. Shares may be exchanged
between two Funds by telephone only if the two Deutsche Funds have identical
shareholder registrations.
Any shares held in certificated form cannot be exchanged by telephone but must
be forwarded to Federated Shareholder Services Company and deposited to the
shareholder's account before being exchanged. Telephone exchange instructions
are recorded and will be binding upon the shareholder. Such instructions will be
processed as of 4:00 p.m. (U.S. Eastern time), and must be received by the Fund
before that time for shares to be exchanged the same day. With respect to the
Top 50 US, any orders must be received and transmitted to the Fund by the close
of regular trading on the NYSE when such closing occurs before 4:00 p.m. (U.S.
Eastern time). This privilege may be modified or terminated at any time.
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REDEMPTION OF SHARES
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Shares are redeemed at their net asset value, next determined after a Fund
receives the redemption request, less any applicable contingent deferred sales
charge. Redemptions will be made on days on which the Funds compute their net
asset value. Redemption requests must be received in proper form and can be made
as described below.
Redeeming Shares Through a Financial Intermediary
Shares of a Fund may be redeemed by calling your Financial Intermediary to
request the redemption. Shares will be redeemed at the net asset value next
determined after a Fund receives the redemption request from the Financial
Intermediary, less any applicable contingent deferred sales charge. Redemption
requests made through a registered broker/dealer must be received by the broker
before 4:00 p.m. (U.S. Eastern time) and must be transmitted by the broker to a
Fund before 5:00 p.m. (U.S. Eastern time) in order for shares to be redeemed at
that day's net asset value. Redemption requests through other Financial
Intermediaries (such as banks) must be received by the Financial Intermediary
and transmitted to a Fund before 4:00 p.m. (U.S. Eastern time) in order for
shares to be redeemed at that day's net asset value. With respect to the Top 50
US, any orders must be received and transmitted to the Fund by the close of
regular trading on the NYSE when such closing occurs before 4:00 p.m. (U.S.
Eastern time). The Financial Intermediary is responsible for promptly submitting
redemption requests and providing proper written redemption instructions.
Customary fees and commissions may be charged by the Financial Intermediary for
this service.
Redeeming Shares by Telephone
Shares may be redeemed in any amount by calling the Fund, provided that Fund has
received a properly completed authorization form. These forms can be obtained
from the Transfer Agent. Proceeds will be mailed in the form of a check, to the
shareholder's address of record or by wire transfer to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
The minimum amount for a wire transfer is $1,000. Proceeds from redeemed shares
purchased by check or through ACH will not be wired until the payment has
cleared. Proceeds from redemption requests received on holidays when wire
transfers are restricted will be wired the following business day. Wire
transferred redemptions of less than $5,000 may be subject to additional
fees.
Telephone instructions will be recorded. If reasonable procedures are not
followed by a Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, redemption by mail (see "Redeeming Shares by Mail") should be
considered. If at any time a Fund shall determine it necessary to terminate or
modify the telephone redemption privilege, shareholders would be promptly
notified.
Redeeming Shares by Mail
Shares may be redeemed in any amount by mailing a written request to: Deutsche
Funds, Inc., Federated Shareholder Services Company, P.O. BOx 8612, Boston, MA
02266-8612. If share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: Fund Name and the share Class name; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days after receipt of a proper written redemption request. Dividends are
paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record, must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a U.S. domestic stock exchange; or any other
"eligible guarantor institution," as defined by the Securities and Exchange Act
of 1934, as amended. The Funds do not accept signatures guaranteed by a notary
public.
Each Fund and the Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. A Fund may elect in the future to limit
eligible signature guarantors to institutions that are members of a signature
guarantee program. Each Fund and the Transfer Agent reserve the right to amend
these standards at any time without notice.
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SPECIAL REDEMPTION FEATURES
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Systematic Withdrawal Program
The Systematic Withdrawal Program permits the shareholder to request withdrawal
of a specified dollar amount (minimum $100) on either a monthly or quarterly
basis from accounts with a $10,000 minimum at the time the shareholder elects to
participate in the Systematic Withdrawal Program. Under this program, shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to shares,
and the fluctuation of the net asset value of shares redeemed under this
program, redemptions may reduce, and eventually deplete, the shareholder's
investment in a Fund. In addition, shareholder accounts are subject to minimum
balances. See "Account and Share Information." For this reason, payments under
this program should not be considered as yield or income on the shareholder's
investment in a Fund. A shareholder may apply for participation in this program
through such shareholder's Financial Intermediary. Due to the fact that Class A
shares are sold with a sales charge, it is not advisable for shareholders to
continue to purchase Class A shares while participating in this program. A
contingent deferred sales charge may be imposed on Class B shares.
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CONTINGENT DEFERRED SALES CHARGE
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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
exchanged-for Fund shares issued in an exchange from another Deutsche Fund
shares are redeemed is calculated as if the shareholder had held the shares from
the date on which such shareholder became a shareholder of the exchanged-from
Fund. Moreover, the contingent deferred sales charge will be eliminated with
respect to certain redemptions (see "Contingent Deferred Sales Charge--
Elimination of Contingent Deferred Sales Charge").
Elimination of Contingent Deferred Sales Charge
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Code, of a shareholder; (2)redemptions
representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2; and (3) redemptions by a Fund of shares in shareholder accounts that do
not comply with the minimum balance requirements. No contingent deferred sales
charge will be imposed on redemptions of shares held by Trustees, employees and
sales representatives of the Funds, the distributor, or affiliates of the Funds
or distributor; employees of any Financial Intermediary that sells shares of the
Funds pursuant to a sales agreement with the Distributor; and spouses and
children under the age of 21 of the aforementioned persons. Finally, no
contingent deferred sales charge will be imposed on the redemption of shares
originally purchased through a bank trust department, an investment adviser
registered under the Investment Advisers Act of 1940, or retirement plans where
the third party administrator has entered into certain arrangements with the
Distributor or its affiliates, or any other Financial Intermediary, to the
extent that no payments were advanced for purchases made through such entities.
The Trustees reserve the right to discontinue elimination of the contingent
deferred sales charge. Shareholders will be notified of such elimination. Any
shares purchased prior to the termination of such waiver would have the
contingent deferred sales charge eliminated as provided in the Fund's Prospectus
at the time of the purchase of the shares. If a shareholder making a redemption
qualifies for an elimination of the contingent deferred sales charge, the
shareholder must notify the Distributor or the transfer agent in writing that
such shareholder is entitled to such elimination.
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ACCOUNT AND SHARE INFORMATION
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Certificates and Confirmations
As transfer agent for the Funds, Federated Shareholder Services Company
maintains a Share account for each shareholder. Share certificates are not
issued unless requested in writing to Federated Shareholder Services Company. No
certificates will be issued for fractional shares.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Annual statements are sent to report dividends paid during the
year.
Accounts with Low Balances
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value of
$5,000. This requirement does not apply, however, if the balance falls below the
required minimum value because of changes in the net asset value of the
respective share class. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
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DIVIDENDS AND DISTRIBUTIONS
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Dividends consisting of substantially all of a Fund's net investment income, if
any, are declared and paid annually. A Fund may also declare an additional
dividend of net investment income in a given year to the extent necessary to
avoid the imposition of federal excise tax on the Fund.
Substantially all the realized net capital gains, if any, of each Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund. All shareholders on the record
date are entitled to dividends and capital gains distributions.
Dividends and distributions paid by a Fund are automatically reinvested in
additional shares of that Fund at net asset value with no sales charge unless
the shareholder has elected to have them paid in cash. Dividends and
distributions to be paid in cash are mailed by check in accordance with the
shareholder's instructions. Each Fund reserves the right to discontinue, alter
or limit the automatic reinvestment privilege at any time.
U.S. federal regulations require that a shareholder provide a certified taxpayer
identification number ("TIN") upon opening an account. A TIN is either the
Social Security number or employer identification number of the record owner of
the account. Failure to furnish a certified TIN to a Fund could subject a
shareholder to a $50 penalty which will be imposed by the Internal Revenue
Service ("IRS") on the Fund and passed on by the Fund to the shareholder. With
respect to individual investors and certain non-qualified retirement plans, U.S.
federal regulations generally require the Funds to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of any dividends and
distributions (including the proceeds of any redemption) payable to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct, or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on a
federal income tax return. Furthermore, the IRS may notify the Funds to
institute backup withholding if the IRS determines a shareholder's TIN is
incorrect. Backup withholding is not an additional tax; amounts withheld may be
credited against the shareholder's U.S. federal income tax liability.
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NET ASSET VALUE
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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. The Top 50 US computes its
net asset value at the earlier of 4:00 p.m. (U.S. Eastern time) or the close of
regular trading on the NYSE.
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ORGANIZATION
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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. Shareholders in each Fund generally
vote in the aggregate and not by class, unless the law expressly requires
otherwise or the Directors determine that the matter to be voted upon affects
only the interests of shareholders of a particular Fund or class of shares. The
voting rights of shareholders are not cumulative. Shares have no preemptive or
conversion rights (other than the automatic conversion of Class B shares into
Class A shares as described under "Purchase of Shares--Conversion of Class B
Shares"). The rights of redemption are described elsewhere herein. Shares are
fully paid and nonassessable by the Corporation. It is the intention of the
Corporation not to hold meetings of shareholders annually. The Directors of the
Corporation may call meetings of shareholders for action by shareholder vote as
may be required by the 1940 Act or as may be permitted by the Articles of
Incorporation or By-laws.
The Corporation's Articles of Incorporation provide that the presence in person
or by proxy of the holders of record of one third of the shares outstanding and
entitled to vote thereat shall constitute a quorum at all meetings of
shareholders of a Fund, except as otherwise required by applicable law. The
Articles of Incorporation further provide that all questions shall be decided by
a majority of the votes cast at any such meeting at which a quorum is present,
except as otherwise required by applicable law.
The Corporation's Articles of Incorporation provide that, at any meeting of
shareholders of a Fund or Class, a Financial Intermediary may vote any shares as
to which that Financial Intermediary is the agent of record and which are
otherwise not represented in person or by proxy at the meeting, proportionately
in accordance with the votes cast by holders of all shares otherwise represented
at the meeting in person or by proxy as to which that Financial Intermediary is
the agent of record. Any shares so voted by a Financial Intermediary are deemed
represented at the meeting for purposes of quorum requirements.
Each Portfolio is a series of the Deutsche Portfolios, a trust organized under
the 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.
As of March 20, 1998, the following shareholders owned 25% or more of the Funds,
and therefore, may for certain purposes be deemed to control the Funds and be
able to affect the outcome of certain matters presented for a vote of
shareholders:
Federated Administrative Services, Pittsburgh, PA, owned 58.73% of the voting
securities of the Class A shares of the Top 50 Europe Fund, comprising 58.73% of
the total common stock of the Fund.
Federated Administrative Services, Pittsburgh, PA, owned 48.51% of the voting
securities of the Class A shares of the Top 50 Asia Fund, comprising 48.51% of
the total common stock of the Fund.
Deutsche Morgan Grenfell, Inc. (as record holder for its clients), New York, NY,
owned 76.70% of the voting securities of the Class A shares and 100% of the
voting securities of the Class B shares of the Top 50 US Fund, comprising 84.71%
of the total common stock of the Fund.
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TAXES
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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 of net investment income paid by
the Top 50 US or the Top 50 World which are designated as derived from such
Fund's dividend income from U.S. corporations will be eligible, subject to
certain restrictions, for the deduction for dividends received by corporations.
Distributions of net capital gains and dividends and distributions paid by Top
50 Europe or Top 50 Asia will not be eligible for the dividends-received
deduction.
While each Fund intends to distribute all of its net capital gains annually,
each Fund reserves the right to elect to retain some or all of its net capital
gains and treat such undistributed gains as having been paid to shareholders. If
a Fund makes this election, a shareholder would include the amount of
undistributed gains in income as long-term capital gain and would be treated as
having paid the tax on such undistributed gains (which tax will instead be paid
by the Fund) and the shareholder's basis in the shares of the Fund will be
increased by 65% of the amount of undistributed gains included in income.
If the net asset value of shares in any Fund is reduced below a shareholder's
cost as a result of a distribution by the Fund, such distribution 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 (except Top 50 US) will be
eligible to elect to "pass through" to its shareholders the amount of foreign
income taxes (including withholding taxes) paid by such Fund. If a Fund makes
this election, a shareholder would include in gross income his pro rata share of
the foreign income taxes passed through and would be entitled either to deduct
such taxes in computing his taxable income (if the shareholder itemizes
deductions) or to claim a credit (which would be subject to certain limitations)
for such taxes against his U.S. federal income tax liability. A Fund will make
such an election only if it deems it to be in the best interests of its
shareholders and will notify each shareholder in writing each year that it makes
the election of the amount of foreign taxes, if any, to be treated as paid by
the shareholder.
The Taxpayer Relief Act of 1997 creates additional categories of capital gains
taxable at different rates. The categories of gain and related rates will be
passed through to shareholders in capital gains dividends. Shareholders will
report on Form 1040 Schedule D the full amount of capital gain dividends
received from the portfolio and the portion thereof that is taxed at a maximum
28% rate.
For further information on taxes, see "Taxes" in the Statement of Additional
Information.
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ADDITIONAL INFORMATION
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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
Poland*
Warsaw
Slovakia
Bratislavia
Switzerland
Basel, Geneva, Zurich
Exchanges in Non-European countries
Argentina
Buenos Aires
Australia
ASX (Sydney, Hobart, Melbourne, Perth)
Brazil
Sao Paulo, Rio de Janiero
Canada
Toronto, Vancouver, Montreal
Chile
Santiago
Hong Kong
Hong Kong Stock Exchange
India**
Mumbai, Calcutta, Delhi, Madras
Indonesia
Jakarta Stock Exchange
Japan
Tokyo, Osaka, Nagoya, Kyoto, Fukuoto, Niigata, Sapporo, Hiroshima
Malaysia
Kuala Lumpur
Mexico
Mexico City
New Zealand
Wellington Christchurch/Invercargill, Auckland
Peru
Lima
Philippines
Manila
Singapore
Singapore Stock Exchange
South Africa
Johannesburg
South Korea
Seoul
Taiwan
Taipei
Thailand
Bangkok
USA
American Stock Exchange (AMEX), Boston, Chicago, Cincinnati, New York, New York
Stock Exchange (NYSE), Philadelphia, San Francisco Pacific Stock Exchange, Los
Angeles Pacific Stock Exchange
Regulated Markets in countries which are not members of the European Union and
not contracting states of the treaty on the European Economic Area
Japan
Over-the-Counter Market
Canada
Over-the-Counter Market
South Korea
Over-the Counter Market
Switzerland
Free Trading Zurich, Free Trading Geneva, Exchange Bern
Over the Counter Market of the members of the International Securities Market
Association (ISMA), Zurich
United States
NASDAQ-System
Over-the-Counter Market (organized markets by the National Association of
Securities Dealers, Inc.)
* Top 50 World and Top 50 Asia Only
** Top 50 Asia Only
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Corporation or the Distributor. This Prospectus
does not constitute an offer by the Corporation or by the Distributor to sell or
a solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Corporation or the
Distributor to make such offer in such jurisdiction.
DEUTSCHE EUROPEAN MID-CAP FUND
DEUTSCHE GERMAN EQUITY FUND
DEUTSCHE JAPANESE EQUITY FUND
DEUTSCHE GLOBAL BOND FUND
DEUTSCHE EUROPEAN BOND FUND
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 European Mid-Cap Fund ("European Mid-Cap
Fund"), Deutsche German Equity Fund ("German Equity Fund") and Deutsche Japanese
Equity Fund ("Japanese Equity Fund")(collectively, the "Equity Funds") and
Deutsche Global Bond Fund ("Global Bond Fund") and Deutsche European Bond Fund
("European Bond Fund")(collectively, the "Bond Funds"). The Equity Funds and the
Bond Funds are referred to herein individually, as a "Fund" and collectively, as
the "Funds." Each Fund is a non-diversified series of the Deutsche Funds, Inc.,
an open-end management investment company organized as a Maryland corporation
(the "Corporation") (together with the Funds, the "Deutsche Funds"). The
investment objective of European Mid-Cap Fund and the German Equity Fund is
primarily to achieve high capital appreciation, and as a secondary objective,
reasonable dividend income. The investment objective of Japanese Equity Fund is
to achieve high capital appreciation. The investment objective of the Bond Funds
is to achieve steady, high income.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, each Fund seeks to achieve its investment objective by investing
all of its investable assets in a corresponding non-diversified open-end
management investment company (each, a "Portfolio" and collectively, the
"Portfolios"). Each Portfolio is a series of the Deutsche Portfolios (the
"Portfolio Trust") and has the same investment objective as its corresponding
Fund. Each Fund invests in its corresponding Portfolio through the Hub and
Spoke(R) master-feeder investment fund structure. "Hub and Spoke" is a
registered service mark of Signature Financial Group, Inc.
Each Portfolio is managed by Deutsche Fund Management, Inc. ("DFM" or the
"Manager"), a registered investment adviser and an indirect subsidiary of
Deutsche Bank AG, a major global financial institution.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Funds has been filed with
the Securities and Exchange Commission ("SEC") in a Statement of Additional
Information dated April 30, 1998. This information is incorporated herein by
reference and is available without charge upon written request from the Funds'
transfer agent, Federated Shareholder Services Company or by calling toll-free
888-4-DEUTSCHE.
INVESTMENTS IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, DEUTSCHE BANK AG OR ANY OTHER BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN CLASS A SHARES
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 April 30, 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Expense Summary........................................ 2
Financial Highlights................................... 3
The Funds.............................................. 4
Investment Objective, Policies and Restrictions........ 4
Equity Funds.......................................... 4
Bond Funds............................................ 5
All Funds............................................. 5
Risk Factors........................................... 8
Equity Investments.................................... 8
Fixed Income Securities............................... 8
Foreign Investments................................... 8
Emerging Markets (Provesta Portfolio and
Global Bond Portfolio Only)........................... 9
Futures, Options, and Warrants........................ 9
Geographic Investment Emphasis........................ 9
Local Securities Markets.............................. 9
Management of the Corporation and the Portfolio Trust.. 9
Manager............................................... 10
Adviser............................................... 10
Historical Performance of Corresponding DWS Funds..... 10
Portfolio Management.................................. 12
Investing in the Funds................................. 14
Class A Shares........................................ 14
Class B Shares........................................ 14
Purchase of Shares..................................... 14
Investing in Class A Shares........................... 15
Special Purchase Features.............................. 17
Systematic Investment Program......................... 17
Retirement Plans...................................... 17
Exchange Privilege..................................... 18
Class A Shares........................................ 18
Class B Shares........................................ 18
Requirements for Exchange............................. 18
Tax Consequences...................................... 18
Making an Exchange.................................... 18
Telephone Instructions................................ 18
Redemption of Shares................................... 18
Redeeming Shares Through a Financial Intermediary..... 18
Redeeming Shares by Telephone......................... 18
Redeeming Shares by Mail.............................. 19
Special Redemption Features............................ 19
Systematic Withdrawal Program......................... 19
Contingent Deferred Sales Charge....................... 19
Class A Shares........................................ 19
Class B Shares........................................ 19
Class A Shares and Class B Shares..................... 19
Elimination of Contingent Deferred Sales Charge....... 20
Account and Share Information.......................... 20
Certificates and Confirmations........................ 20
Accounts with Low Balances............................ 20
Dividends and Distributions............................ 20
Net Asset Value........................................ 20
Organization........................................... 21
Taxes.................................................. 22
Additional Information................................. 22
Appendix A............................................. 23
</TABLE>
- --------------------------------------------------------------------------------
EXPENSE SUMMARY
- --------------------------------------------------------------------------------
The following table summarizes estimated shareholder transaction and annual
operating expenses of Class A shares and Class B shares of each Fund and 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
<TABLE>
<CAPTION>
Equity Funds Bond Funds
-------------------- --------------------
Class A Class B Class A Class B
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)...................................... 5.50% None 4.50% None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)...................................... None None None None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)............................. 0.00%(1) 5.00%(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
</TABLE>
(1) Class A shares purchased without an initial sales charge (i) based on an
initial investment of $1,000,000 or more or (ii) with proceeds of a
redemption of shares of an unaffiliated investment company purchased or
redeemed with a sales charge and not distributed by Edgewood, may be
charged a contingent deferred sales charge of 1.00% for redemptions made
within one full year of purchase. See "Contingent Deferred Sales Charge."
(2) In the first year declining to 1.00% in the sixth year and 0% thereafter.
Expense Table
Annual Operating Expenses (After Expense Reimbursement)
(As a percentage of projected average net assets)
<TABLE>
<CAPTION>
Equity Funds Bond Funds
----------------- -----------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Advisory Fees............................................ 0.85% 0.85% 0.75% 0.75%
12b-1 Fees
Service.................................................. 0.25% 0.25% 0.25% 0.25%
Distribution............................................. 0.00% 0.75% 0.00% 0.75%
Other Expenses (after expense reimbursement)............. 0.50% 0.50% 0.30% 0.30%
----- ----- ----- -----
Total Operating Expenses (after expense reimbursement)... 1.60% 2.35% 1.30% 2.05%
===== ===== ===== =====
</TABLE>
Example
- ------------------------------------------------------------------------------
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Equity Funds Bond Funds
---------------- ----------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year................................................................................ $ 70 $ 73 $58 $70
3 Years............................................................................... $103 $103 $84 $94
You would pay the following expenses on the same investment assuming no
redemption:
1 Year................................................................................ $ 70 $ 25 $58 $24
3 Years............................................................................... $103 $ 73 $84 $73
</TABLE>
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in a
Fund would bear. Wire transferred redemptions of less than $5,000 may be subject
to additional fees. The fees and expenses included in "Other Expenses" are
estimated for each Fund's first fiscal year and include (i) the fees paid to the
Administrator, Administrative Agent, Operations Agent, Transfer Agent, Fund
Accounting Agent, and Custodian (as each are defined 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 European Mid-Cap Fund, German Equity Fund, Japanese Equity
Fund, Global Bond Fund and European Bond Fund would be 0.98%, 0.96%, 0.99%,
1.01% and 0.95%, respectively, and "Total Operating Expenses" would be 2.08%,
2.06%, 2.09%, 2.01% and 1.95%, respectively, of the Fund's average daily net
assets attributed to Class A shares, and 2.83%, 2.81%, 2.84%, 2.76% and 2.70%,
respectively, of the Fund's average daily net assets attributed to Class B
shares. For a more detailed description of contractual fee arrangements,
including expense reimbursements, see "Management of the Corporation and the
Portfolio Trust." In connection with the above example, investors should note
that $1,000 is less than the minimum investment requirement for each Class of
each Fund. See "Purchase of Shares." Because the fees paid under the 12b-1 Plan
of the Fund are charged against the assets of the Fund, long-term shareholders
may indirectly pay an amount that is more than the economic equivalent of the
maximum front-end sales charge that such Fund would be permitted to charge. The
example is hypothetical; it is included solely for illustrative purposes. It
should not be considered a representation of future performance; actual expenses
may be more or less than those shown. FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Unaudited financial highlights for Class A shares of the Funds for the period
from commencement of operations through February 28, 1998, are incorporated
herein by reference to the Semi-Annual Report and supplement to the Prospectus
dated April 30, 1998, which accompanies this Prospectus. Class B shares did not
have any operations through February 28, 1998.
- --------------------------------------------------------------------------------
THE FUNDS
- --------------------------------------------------------------------------------
Each Fund is a non-diversified, open-end management investment company and is a
series of shares of common stock of the Deutsche Funds, Inc., a Maryland
corporation incorporated on May 22, 1997 (see "Organization"). The investment
objective of European Mid-Cap Fund and the German Equity Fund is primarily to
achieve high capital appreciation, and as a secondary objective, reasonable
dividend income. The investment objective of Japanese Equity Fund is to achieve
high capital appreciation. The investment objective of the Bond Funds is to
achieve steady, high income.
Each Fund seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Portfolio that has the same investment
objective as the Fund. The European Mid-Cap Fund invests all of its investable
assets in the Provesta Portfolio (US Dollar); the German Equity Fund invests all
of its investable assets in the Investa Portfolio (US Dollar); the Japanese
Equity Fund invests all of its investable assets in the Japanese Equity
Portfolio (US Dollar); the Global Bond Fund invests all of its investable assets
in the Global Bond Portfolio (US Dollar); and the European Bond Fund invests all
of its investable assets in the European Bond Portfolio (US Dollar). The
Provesta Portfolio (US Dollar), Investa Portfolio (US Dollar) and Japanese
Equity Portfolio (US Dollar) are referred to herein individually, as an "Equity
Portfolio" and collectively, as the "Equity Portfolios." The Global Bond
Portfolio (US Dollar) and the European Bond Portfolio (US Dollar) are referred
to herein individually, as a "Bond Portfolio" and collectively, as the "Bond
Portfolios." The Equity Portfolios and the Bond Portfolios are referred to
herein individually, as a "Portfolio" and collectively, as the "Portfolios."
Each Portfolio is an open-end management investment company and a series of
shares of beneficial interest in the Deutsche Portfolios, a trust organized
under the laws of the State of New York (see "Organization").
Shares of the Funds are sold continuously by the Funds' distributor, Edgewood
Services, Inc. ("Edgewood" or the "Distributor"). The Funds require a minimum
initial investment of $5,000. The minimum subsequent investment is $500 (see
"Purchase of Shares"). If a shareholder reduces his or her investment in a Fund
to less than the applicable minimum investment, the investment is subject to
mandatory redemption. See "Account and Share Information--Accounts with Low
Balances."
Proceeds from the sale of shares of each Fund are invested in its corresponding
Portfolio, which then invests its assets in accordance with its investment
objective and policies. DWS International Portfolio Management GmbH is the
investment adviser of the Portfolios (the "Adviser"). DFM and the Adviser are
indirect subsidiaries of Deutsche Bank AG. Federated Services Company is the
administrator of the Funds (the "Administrator") and the operations agent of the
Portfolios ("Operations Agent"). IBT Fund Services (Canada) Inc. ("IBT
(Canada)") is the fund accounting agent of the Funds and the Portfolios ("Fund
Accounting Agent"). Federated Shareholder Services Company is the transfer agent
and dividend disbursing agent of the Funds ("Transfer Agent"). IBT Trust Company
(Cayman) Ltd. ("IBT (Cayman)") is the administrative agent of the Portfolios
("Administrative Agent"). Investors Bank & Trust Company ("IBT") is the
custodian of the Funds and the Portfolios ("Custodian"). The Board of Directors
of the Corporation and the Board of Trustees of the Portfolio Trust provide
broad supervision over the affairs of the Funds and of the Portfolios,
respectively. The Directors who are not "interested persons" of the Corporation
as defined in the Investment Company Act of 1940, as amended (the "1940
Act")(the "Independent Directors"), are the same as the Trustees who are not
"interested persons" of the Portfolio Trust as defined in the 1940 Act (the
"Independent Trustees"). A majority of the Corporation's Directors and the
Portfolio Trust's Trustees are not affiliated with the Manager, the Adviser or
the Distributor. For further information about the Directors of the Corporation
and the Trustees of the Portfolio Trust, see "Management of the Corporation and
the Portfolio Trust" herein and "Directors, Trustees, and Officers" in the
Statement of Additional Information.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES
AND RESTRICTIONS
- --------------------------------------------------------------------------------
Each Fund seeks to achieve its investment objective by investing all 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 European Mid-Cap Fund and the German Equity Fund is
primarily to achieve high capital appreciation and, as a secondary objective,
reasonable dividend income. The investment objective of Japanese Equity Fund is
to achieve high capital appreciation.
The Provesta Portfolio (US Dollar)("Provesta Portfolio") pursues its (and the
European Mid-Cap Fund's) investment objective by investing primarily in the
equity securities of issuers located in European countries, including those
which are member states of the European Union, those which are party to the
Convention on the European Economic Area ("CEEA"), Switzerland, Slovakia, Czech
Republic, and Hungary.
The Provesta Portfolio seeks investment in companies which the Adviser believes
may grow at a higher rate than the average of other European companies. These
anticipated higher growth rates may cause the performance of the Fund to be more
volatile than that of other equity funds, and therefore, investors should
consider an investment in the European Mid-Cap Fund to be subject to more risk
and greater volatility. See "Risk Factors."
Under normal circumstances, at least 65% of the Portfolio's total assets are
invested in European equity securities issued by companies with market
capitalizations of between $115 million and $19 billion.
The Investa Portfolio (US Dollar)("Investa Portfolio") pursues its (and the
German Equity Fund's) investment objective by investing primarily in the equity
securities of German companies.
Under normal circumstances, at least 65% of the Portfolio's total assets are
invested in equity securities issued by German issuers. In pursuing the
Portfolio's objective, the Adviser will emphasize German companies that have
some or all of the following attributes: high market capitalization, large
number of publicly held shares, high trading volume, high liquidity, financial
stability, or a widely known name or product/service.
The Japanese Equity Portfolio (US Dollar) ("Japanese Equity Portfolio") pursues
its (and the Japanese Equity Fund's) investment objective by investing primarily
in the equity securities of Japanese issuers. Under normal circumstances, at
least 65% of the Portfolio's total assets are invested in equity securities
issued by Japanese companies, which may include, for the purpose of meeting such
65% minimum, up to 5% of total assets in securities that grant the right to
acquire Japanese securities.
Fixed Income Securities
Each Equity Portfolio is permitted to invest in fixed income securities,
although it intends to remain invested in equity securities to the extent
practical in light of its objective. The Provesta Portfolio's and Investa
Portfolio's investment in fixed income securities (excluding bank deposits and
money market instruments) will not exceed 20% of such Portfolio's net assets.
The Japanese Equity Portfolio's investment in fixed income securities (excluding
bank deposits and money market instruments) will not exceed 30% of the
Portfolio's net assets. For purposes of each Portfolio's investments,
convertible bonds and bonds with warrants would be considered equities, not
fixed income securities. For the quality criteria of the fixed income securities
in which the Equity Portfolios may invest, see "Quality of Fixed Income
Securities" below.
Bond Funds
The investment objective of the Bond Funds is to achieve steady, high income.
The Global Bond Portfolio (US Dollar)("Global Bond Portfolio") pursues its (and
the Global Bond Fund's) investment objective by investing primarily in the fixed
income securities (including convertible bonds and bonds with warrants) of
issuers worldwide.
Under normal circumstances, at least 65% of the Global Bond Portfolio's total
assets are invested in bonds and the Portfolio will include securities of
issuers organized in at least three different countries.
The European Bond Portfolio (US Dollar)("European Bond Portfolio") pursues its
(and the European Bond Fund's) investment objective by investing primarily in
the fixed income securities of European issuers.
Under normal circumstances, at least 65% of the Portfolio's total assets are
invested in bonds issued by European issuers.
Each Bond Portfolio's investment in equity securities will not exceed 25% of
each Portfolio's net assets. For purposes of the foregoing investment policies,
the term "bonds" includes all fixed-income securities.
All Funds
Listed Securities
Each Portfolio will invest primarily in listed securities ("Listed Securities").
For purposes of this prospectus Listed Securities are defined as securities
meeting at least one of the following requirements: (a) they are listed on a
stock exchange in a member state of the European Union ("Member State") or in
another state which is a party to the CEEA, or are included on another regulated
market in a Member State or in another state party to the CEEA which market is
recognized, open to the public and operates regularly; (b) they are admitted to
the official listing on one of the stock exchanges listed in Appendix A or
included on one of the regulated markets listed in Appendix A; or (c)application
is to be made for admission to official listing on one of the aforementioned
stock exchanges or inclusion in one of the aforementioned regulated markets and
such admission or inclusion is to take place within 12 months of their issue.
Unlisted Securities and Notes
Up to a total of 10% of the net assets of each Portfolio may be invested in:
(a) securities that are consistent with the Portfolio's investment objective
and policies, which are not admitted to official listing on one of the
stock exchanges or included on one of the regulated markets, described
above;
(b) interests in loans which are portions of an overall loan granted by a
third party and for which a note has been issued ("Notes"), provided these
Notes can be assigned at least twice after purchase by the Portfolio, and
the Note was issued by:
. the Federal Republic of Germany, 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"),
. another German domestic authority, or a regional government or local
authority of another Member State or another state party to the CEEA
for which a zero weighting was notified according to Article 7 of the
Council Directive 89/647/EEC of 18 December 1989 on a solvency ratio
for credit institutions (Official Journal EC No. L386, p. 14),
. other corporate bodies or institutions organized under public law and
registered domestically in Germany or in another Member State or
another state party to the CEEA,
. other debtors, if guaranteed as to the payment of interest and
repayment of principal by one of the aforementioned bodies, or
. companies which have issued securities which are admitted to official
listing on a German or other foreign stock exchange.
Investments in Notes are subject to the Provesta Portfolio's and Investa
Portfolio's overall 20% limitation on fixed income securities and the Japanese
Equity Portfolio's overall 30% limitation on fixed income securities. See
"Equity Funds" above.
The current Member States and the states party to the CEEA and OECD Members are
listed in Appendix A.
Quality of Fixed Income Securities
The fixed income securities in which each Portfolio may invest will be rated on
the date of investment, within the four highest ratings of Moody's Investors
Service, Inc. ("Moody's"), currently Aaa, Aa, A and Baa, or of Standard & Poor's
("S&P"), currently AAA, AA, A and BBB or, if unrated, will be, in the opinion of
the Adviser, of comparable quality to such rated securities discussed above.
Fixed income securities rated Baa by Moody's or BBB by S&P have speculative
characteristics. See Appendix B to the Statement of Additional Information for a
description of these ratings.
Bank Deposits and Money Market Instruments
Each Portfolio may temporarily invest in bank deposits and money market
instruments maturing in less than 12 months. These instruments include credit
balances and bank certificates of deposit, discounted treasury notes and bills
issued by 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.
Securities Loans
Subject to applicable investment restrictions, each Portfolio is permitted to
lend its securities. These loans may not exceed 33-1/3% of a Portfolio's total
assets. The Portfolios may pay reasonable administrative and custodial fees in
connection with the loan of securities. The following conditions will be met
whenever portfolio securities of a Portfolio are loaned: (1) the Portfolio must
receive at least 100% collateral from the borrower; (2) the borrower must
increase such collateral whenever the market value of the securities loaned
rises above the level of the collateral; (3) the Portfolio must be able to
terminate the loan at any time; (4) the Portfolio must receive reasonable
interest on the loan, as well as payments in respect of any dividends, interest
or other distributions on the loaned securities, and any increase in market
value; (5) the Portfolio may pay only reasonable custodian and finder's fees in
connection with the loan; and (6) while voting rights on the loaned securities
may pass to the borrower, the Portfolio must terminate the loan and regain the
right to vote the securities if a material event conferring voting rights and
adversely affecting the investment occurs. In addition, a Portfolio will
consider all facts and circumstances, including the creditworthiness of the
borrowing financial institution. No Portfolio will lend its securities to any
officer, Trustee, Director, employee or other affiliate of the Corporation or
the Portfolio Trust, the Manager, the Adviser or the Distributor, unless
otherwise permitted by applicable law.
Each Portfolio may lend its securities on a demand basis provided the market
value of the assets transferred in securities loans together with the market
value of the securities already transferred as a securities loan for the
Portfolio's account to the same borrower does not exceed 10% of the net assets
of the Portfolio.
Borrowing
Each Portfolio may borrow money from banks for temporary or short-term purposes
and then only in amounts not to exceed 10% of the Portfolio's total assets, at
the time of such borrowing.
Warrants
Each Portfolio may purchase warrants in value of up to 10% of the Portfolio's
net assets. The warrants in which the Portfolios invest are a type of security
that entitles the holder to buy a fixed amount of securities of such issuer at a
specified price at a fixed date or for a fixed period of time (which may be in
perpetuity) or to demand settlement in cash based on the price performance of
the underlying security. If the market price of the underlying security is below
the exercise price set forth in the warrant on the expiration date, the warrant
will expire worthless.
Warrants do not entitle the holder to dividends or voting rights with respect to
the underlying securities and do not represent any rights in the assets of the
issuing company. Also the value of the warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have value if it
is not exercised prior to the expiration date.
Convertible Securities
The convertible securities in which the Portfolios may invest include any debt
securities or preferred stock which may be converted into common stock or which
carry the right to purchase common stock. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
Short-Term Trading
Each Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. A Portfolio may take advantage of short-term trading
opportunities that are consistent with its objective. To the extent a Portfolio
engages in short-term trading, it may realize short-term capital gains or losses
and incur increased transaction costs. See "Taxes" below.
Investment Restrictions
The investment objective of each Fund and each Portfolio, together with the
fundamental investment restrictions described below and in the Statement of
Additional Information, except as noted, are deemed fundamental policies, i.e.,
they may be changed only with the approval of the holders of a majority of the
outstanding voting securities of a Fund and its corresponding Portfolio. Each
Fund has the same investment restrictions as its corresponding Portfolio, except
that each Fund may invest all of its investable assets in the corresponding
Portfolio. References below to the Portfolios' investment restrictions also
include the Funds' investment restrictions. Any other investment policies of the
Portfolios and the Funds described herein or in the Statement of Additional
Information are not fundamental and may be changed without shareholder approval.
Fundamental Investment Restrictions
Each Portfolio is classified as "non-diversified" under the 1940 Act, which
means that each corresponding Fund is not limited by the 1940 Act with respect
to the portion of its assets which may be invested in securities of a single
company (although certain diversification requirements are in effect imposed by
the Internal Revenue Code of 1986, as amended (the "Code")). The possible
assumption of large positions in the securities of a small number of companies
may cause the performance of a Fund to fluctuate to a greater extent than that
of a diversified investment company as a result of changes in the financial
condition or in the market's assessment of the companies.
At least 65% of the Provesta Portfolio's total assets are invested in European
equity securities issued by companies with market capitalizations of between
$115 million and $19 billion. At least 65% of the Investa Portfolio's total
assets are invested in equity securities issued by German companies. At least
65% of the Japanese Equity Portfolio's total assets are invested in equity
securities issued by Japanese companies, which may include, for the purposes of
meeting such 65% minimum, up to 5% of the total assets in securities that grant
the right to acquire Japanese securities. At least 65% of the Global Bond
Portfolio's total assets are invested in bonds and such Portfolio will include
securities of issuers organized in at least three different countries. At least
65% of the European Bond Portfolio's total assets are invested in bonds issued
by European issuers.
No Portfolio may purchase securities or other obligations of issuers conducting
their principal business activity in the same industry if its investments in
such industry would equal or exceed 25% of the value of the Portfolio's total
assets, provided that the foregoing limitation shall not apply to investments
in securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
Non-Fundamental Investment Restrictions
Each Portfolio 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. Further-more, the economies of individual foreign
nations may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Portfolios must be made in
compliance with foreign currency restrictions and tax laws restricting the
amounts and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic securities exchanges. Accordingly, the Portfolios'
foreign investments may be less liquid and their prices may be more volatile
than comparable investments in securities of U.S. companies. Moreover, the
settlement periods for foreign securities, which are often longer than those for
securities of U.S. issuers, may affect portfolio liquidity. In buying and
selling securities on foreign exchanges, purchasers normally pay fixed
commissions that are generally higher than the negotiated commissions charged in
the United States. In addition, there is generally less government supervision
and regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Since each Portfolio's investments in foreign securities involve foreign
currencies, the value of the Portfolio's assets as measured in U.S. dollars may
be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations, including currency blockage. Because the Provesta
Portfolio and Investa Portfolio do not presently intend to engage in currency
transactions to hedge currency risks, these Portfolios may be more exposed to
the aforementioned currency risks. See "Foreign Currency Exchange Transactions"
in the Statement of Additional Information.
Emerging Markets (Provesta Portfolio and Global Bond Portfolio Only)
Investments in securities of issuers in emerging markets countries may involve a
high degree of risk and many may be considered speculative. Investments in
developing and emerging markets may be subject to potentially greater risks than
those of other foreign issuers. These risks include: (i) the small current size
of the markets for such securities and the low volume of trading, which result
in less liquidity and in greater price volatility; (ii) certain national
policies which may restrict the Portfolio's investment opportunities, including
restrictions on investment in issuers or industries deemed sensitive to national
interests; (iii) foreign taxation; (iv) the absence, until recently, of a
capital market structure or market oriented economy as well as issuers without a
long period of successful operations; (v) the possibility that recent favorable
economic developments may be slowed or reversed by unanticipated political or
social events in such countries or their neighboring countries; and (vi) greater
risks of expropriation, confiscatory taxation, nationalization, and less social,
political and economic stability.
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.
Geographic Investment Emphasis
From time to time, due to investment opportunities perceived by the Manager to
be attractive, a Portfolio or a Fund may invest a relatively larger portion of
its assets in the issuers of securities domiciled, or principally traded, in one
or more individual countries. In the event that such geographic investment
emphasis occurs, the relevant Portfolio or Fund could be subject to greater risk
due to unanticipated, and negative, economic events and/or market action in such
country or countries.
Local Securities Markets
The German Securities Markets
Equity securities trade on the country's eight regional stock exchanges of which
Frankfurt accounted for approximately 78% of the total volume in 1997.
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 40.83% in 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 1997 represented 28.7% of total trading volume on the German
stock exchanges: Deutsche Bank AG with DM 254.7 billion, Daimler Benz AG with DM
233.7 billion, Siemens AG with DM 224.7 billion, Volkswagen AG with DM 192.3
billion, and Bayer AG with DM 145.1 billion.
Japanese Equity Securities Markets
Listed securities in Japan trade on three Main Japanese Exchanges (including the
Tokyo Stock Exchange) and five regional stock exchanges, although the Tokyo
Stock Exchange ("TSE") has generally represented over 72% of annual trade of
volume. In 1997, three industrial groups (banks, electric appliances and
transportation equipment) accounted for approximately 41% of the total market
value of TSE stocks. Share prices of companies traded on Japanese stock
exchanges reached historical peaks in 1989 and 1990. Afterwards stock prices
decreased significantly, reaching their lowest levels in 1992. For example, the
Nikkei index of 225 stocks fell from 38916 at year-end 1989 to a low in 1992 of
14309, a drop of 63%. The index was 19361 at the end of 1996, and 15258 at
December 31, 1997. The decline in stock prices after 1989 has raised the cost of
capital for industry and has reduced the value of stock holdings by banks and
corporations. These effects have, in turn, contributed to the recent weakness in
Japan's economy and could continue to have an adverse impact in the future.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE CORPORATION
AND THE PORTFOLIO TRUST
- --------------------------------------------------------------------------------
The Board of Directors of the Corporation and the Board of Trustees of the
Portfolio Trust provide broad supervision over the affairs of each Fund and each
Portfolio, respectively. Each Fund has retained the services of Federated
Services Company as Administrator, Federated Shareholder Services Company as
Transfer Agent, IBT (Canada) as Fund Accounting Agent and IBT as Custodian but
has not retained the services of an investment manager or adviser since each
Fund seeks to achieve its investment objective by investing all of its
investable assets in its corresponding Portfolio. Each Portfolio has retained
the services of DFM as Manager, Federated Services Company as Operations Agent,
IBT (Canada) as Fund Accounting Agent, IBT (Cayman) as Administrative Agent and
IBT as Custodian. DFM has retained the services of DWS International Portfolio
Management GmbH as Adviser for each Portfolio.
Manager
The Portfolio Trust has retained the services of DFM as investment manager to
each Portfolio. DFM, with principal offices at 31 West 52nd Street, 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 $582 billion and 76,100 employees as of
year-end 1997, Deutsche Bank AG is one of Europe's largest universal banks. It
is engaged in a wide range of financial services, including retail and
commercial banking, investment banking and insurance. Deutsche Bank AG'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 $67.5 billion as of December 31, 1997. DFH and its subsidiaries
employ approximately 560 professionals and is one of the largest mutual fund
operators in Europe based on assets under management.
The primary subsidiary of DFH is DWS. Founded in 1956, it is the largest mutual
fund company in Germany, holding a 25% share of the German mutual fund market
based on assets under management as of December 1997. DFH and its subsidiaries
are known in the financial market as "DWS Group, Investmentgroup of Deutsche
Bank."
DFH subsidiaries have received widespread industry recognition in Europe. For
example, Micropal, Europe's leading fund rating organization, has accorded DWS
the following awards: 1994: best fund manager for 1-, 3-, and 5-year periods;
1995: best fund manager for 1-, 3-, and 5-year periods; 1996: best fund manager
for 3- and 5-year periods; 1997: best fund manager for 3- and 5-year periods.
These awards were given to fund managers having 10 or more funds registered for
sale in Germany, based on the manager with the highest number of funds ranked
first within various categories of investment objective defined by Micropal.
Fund rankings are based on above-average performance in Deutsche Mark ("DM")
terms and below-average volatility.
Subject to the overall supervision of the Portfolio Trust's Trustees, DFM is
responsible for the day-to-day investment decisions, the execution of portfolio
transactions and the general management of each Portfolio's investments and
provides certain supervisory services. Under its investment management agreement
with the Portfolio Trust (the "Management Agreement"), DFM is permitted, subject
to the approval of the Board of Trustees of the Portfolio Trust, to delegate to
a third party responsibility for management of the investment operations of each
Portfolio. DFM has delegated this responsibility to the Adviser. DFM retains
overall responsibility, however, for supervision of the investment management
program for each Portfolio. See "Manager" in the Statement of Additional
Information.
As compensation for the services rendered and related expenses borne by DFM
under the Management Agreement with the Portfolio Trust with respect to each
Equity Portfolio, DFM receives a fee from each Equity Portfolio, which is
computed daily and paid monthly, equal to 0.85% of the average daily net assets
of each Equity Portfolio on an annualized basis for the Portfolio's then-current
fiscal year. As compensation for the services rendered and related expenses
borne by DFM under the Management Agreement with the Portfolio Trust with
respect to each Bond Portfolio, DFM receives a fee from each Bond Portfolio,
which is computed daily and paid monthly, equal to 0.75% of the average daily
net assets of each Bond Portfolio on an annualized basis for the Portfolio's
then-current fiscal year. See also "Expenses."
Adviser
Pursuant to an investment advisory agreement ("Advisory Agreement") between DFM
and DWS International Portfolio Management GmbH, the Adviser provides investment
advice and portfolio management services to each Portfolio. Subject to the
overall supervision of DFM, the Adviser conducts the day-to-day investment
decisions of each Portfolio, arranges for the execution of portfolio
transactions and furnishes a continuous investment program for each Portfolio.
The Adviser is an SEC-registered investment adviser and an indirect subsidiary
of Deutsche Bank AG. The offices of the Adviser are located at Grueneburgweg
113-115, 60323 Frankfurt am Main, Germany.
For these services, the Adviser receives from DFM a fee, which is computed daily
and may be paid monthly, equal to 0.60% of the average daily net assets of each
Equity Portfolio and 0.50% of the average daily net assets of each Bond
Portfolio on an annualized basis for the Portfolio's then-current fiscal year.
Historical Performance of Corresponding
DWS Funds
Provesta and Investa are German-registered mutual funds and are referred to
herein as the "DWS Funds." Each of their investment policies and restrictions
are the same as those of the corresponding Provesta and Investa Portfolios
except as noted below. The Provesta and Investa Portfolios (and therefore
indirectly the corresponding European Mid-Cap Fund and German Equity Fund) are
designed to produce investment results substantially the same as the DWS Funds,
Provesta and Investa, respectively. The Provesta and Investa Portfolios seek to
accomplish this by duplicating to the extent practical the portfolio holdings
and transactions of Provesta and Investa. The Adviser manages the investment
operations of each Portfolio with a portfolio manager and a staff of investment
professionals that is composed of the same persons as those that manage and have
full discretionary authority over the selection of investments for the
corresponding DWS Fund.
The European Mid-Cap Fund and its corresponding Provesta Portfolio and the
German Equity Fund and its corresponding Investa Portfolio commenced operations
in 1997 and have no prior 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 Fund are separate funds and you should not assume that a Fund
offered by this Prospectus will have the same future performance as its
corresponding DWS Fund. The DWS Funds operate under the German regulatory and
tax framework and the Portfolios operate under the U.S. regulatory and tax
framework (each with differing diversification requirements, specific tax
restrictions and investment limitations). Since the historical performance of
the DWS Funds would not have been materially affected by the differences in the
regulation of investment companies under U.S. federal securities and tax laws
and regulations, the differences in regulation are not expected to result in any
material differences in performance (net of fees) between the DWS Funds and
their corresponding Portfolios going forward. Investors should note that the
past performance of the DWS Funds is not predictive of the future performance of
the European Mid-Cap Fund or the German Equity Fund or their corresponding
Portfolios.
The following tables show the average annualized total return for the Provesta
and Investa Funds for the one-, three-, five- and ten-year periods ended March
31, 1998 and of securities indices believed by the Adviser to be suitable for
performance comparisons with the Provesta and Investa Portfolios and the DWS
Funds. These figures, which are unaudited, are based on the actual gross
investment performance of the DWS Funds with the adjustments indicated below.
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 March 31, 1998
<TABLE>
<CAPTION>
Historical Performance
in U.S. Dollars
------------------------------------ CDAX Index
Without With (in U.S. Dollars,
Sales Load(2) Sales Load(3) Annualized)(4)
------------- ------------- -----------------
<S> <C> <C> <C>
One Year 29.36% 22.25% 29.46%
Three Years 21.68% 19.41% 20.68%
Five Years 16.84% 15.53% 15.08%
Ten Years 15.98% 15.33% 13.84%
</TABLE>
(1) Net Assets as of 3/31/98 were DM 1,920 million ($1,047 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 Bsrse AG.
INVESTA(1)
(Corresponding to the Investa Portfolio and
German Equity Fund)
Average Annual Returns for the Periods Ended March 31, 1998
<TABLE>
<CAPTION>
Historical Performance
in U.S. Dollars
-------------------------------------- DAX Index
Without With (in U.S. Dollars,
Sales Load(2) Sales Load(3) Annualized)(4)
------------ ------------- -----------------
<S> <C> <C> <C>
One Year 35.02% 27.59% 35.18%
Three Years 26.14% 23.78% 25.75%
Five Years 18.50% 17.17% 18.10%
Ten Years 16.28% 15.62% 15.71%
</TABLE>
(1) Assets as of 3/31/98 were DM 4,478 million ($2,441 million). Investa
commenced investment operations in December 1956.
(2) The sales load may be reduced or eliminated on the purchase of Class A
shares in certain circumstances. See "Purchase of Shares--Reducing or
Eliminating the Sales Charge."
(3) Adjusted to reflect deduction for the maximum sales charge of 5.50%
applicable to Class A shares.
(4) DAX is a total rate of return index consisting of 30 selected German stocks
traded on the Frankfurt Stock Exchange. "DAX" is a registered trademark of
Deutsche Bsrse AG.
The above results are shown in U.S. dollars on the basis of conversion at the
rate of DM values to U.S. dollars at the end of each month at the prevailing
rate. The results assume all dividends and capital gain distributions have been
reinvested with no sales charge.
In calculating the historical performance of the two DWS Funds shown above the
first step was to calculate the historical performance according to a
methodology generally acknowledged in Germany and developed by the BVI
Bundesverband Deutscher Investment--Gesellschaften (Association of German Fund
Companies) ("BVI"). The BVI method measures total return by comparing the net
asset value per share of a fund in DM at the beginning and at the end of the
relevant measurement period, assuming the reinvestment of distributions made by
the fund during such period. For this purpose, the reinvestment of distributions
is increased by including the corporate income tax credit that is available to
shareholders of German fund companies in connection with such distributions. The
BVI method does not take account of any sales load charged to an investor on the
initial investment.
Second, for purposes of calculating the equivalent U.S. dollar returns from the
DM returns yielded by the BVI method, DWS made the following adjustments: (1)
the credit for the German corporate tax credit referred to above was subtracted
from the distributions reinvested since it will not be available to shareholders
of the Funds (but the effect of corporate income taxes incurred by the
corresponding DWS Funds was not eliminated); and (2) the DM returns (including
capital gains and income) were converted to U.S. dollars at prevailing exchange
rates as of the end of each month.
These adjustments resulted in the performance indicated in the first column. The
second column, "With Sales Load," made a further adjustment by reducing the
performance by assuming the maximum sales load was charged to the investor on
the initial investment.
Except as described below in the case of Investa, it is not expected that there
will be any material differences in the securities held by the Provesta and
Investa Portfolios and their corresponding DWS Funds and thus the investment
characteristics of each Portfolio, such as industry diversification, country
diversification, portfolio beta, portfolio quality, average maturity of
fixed-income assets and equity/non-equity mix will be substantially the same as
the investment characteristics of its corresponding DWS Fund. The Investa
Portfolio may not invest in securities issued by Deutsche Bank AG or its
affiliated persons that are engaged in securities-related businesses, although
Investa was and is permitted to invest in such securities. However, the
elimination of Deutsche Bank AG securities from Investa's portfolio during the
periods shown in the table above would not have materially affected Investa's
performance. Consequently, there is no regulatory or tax difference between
either of the two Portfolios and its corresponding DWS Fund that would be
expected to have material effect on the investment performance of the Portfolio
as compared to its corresponding DWS Fund.
Portfolio Management
Elisabeth Weisenhorn is the senior portfolio manager for the Investa Portfolio
and the Provesta Portfolio. Ms. Weisenhorn also serves as portfolio manager for
Investa and Provesta, the Portfolios' corresponding DWS Funds. She has held this
position since 1991. Ms. Weisenhorn has 13 years of experience as an investment
manager and joined the DWS Group in 1985. She is Senior Investment Officer, head
of the German equity team, supervising funds holding assets under management of
DM 13.9 billion ($7.7 billion) as of January 30, 1998. Ms. Weisenhorn is based
at DWS Group's office in Frankfurt, Germany.
Hannah Cunliffe is the portfolio manager for the Japanese Equity Portfolio. Ms.
Cunliffe also serves as portfolio manager of the DWS-Japan Fonds, a German
registered mutual fund with the same objective, policies, and restrictions as
the Japanese Equity Portfolio. She has held this position since February 1994.
Prior to this, she was the Asian equity market analyst for Deutsche Bank
Research. Ms. Cunliffe joined the Deutsche Bank Group in 1989.
Heinz-Wilhelm Fesser is senior portfolio manager for the Global Bond Portfolio
and European Bond Portfolio. Mr. Fesser joined the DWS Group in 1987, where he
has been engaged in the management of global fixed income funds. He is Senior
Investment Officer, head of the global fixed-income team, supervising funds
holding assets under management of DM 23.2 billion ($12.9 billion) as of January
30, 1998.
Administrator
Under a master agreement for administration services with the Corporation,
Federated Services Company serves as Administrator to the Funds. In connection
with its responsibilities as Administrator, Federated Services Company, among
other things (i) prepares, files and maintains the Funds' governing documents,
registration statements and regulatory documents; (ii) prepares and coordinates
the printing of publicly disseminated documents; (iii) monitors declaration and
payment of dividends and distributions; (iv) projects and reviews the Funds'
expenses; (v) performs internal audit examinations; (vi) prepares and
distributes materials to the Directors of the Corporation, (vii) coordinates the
activities of all service providers; (viii) monitors and supervises collection
of tax reclaims; and (ix) prepares shareholder meeting materials.
As Administrator, Federated Services Company receives a fee from each Fund,
which is computed daily and may be paid monthly, at the annual rate of 0.065% of
the average daily net assets of each Fund up to $200 million and 0.0525% of the
average daily net assets of each Fund greater than $200 million for the Fund's
then-current fiscal year. The Administrator will receive a minimum fee of
$75,000 per Fund annually, except that during the first two years of the
agreement a minimum aggregate fee for each Portfolio, corresponding Fund and any
other fund investing in the Portfolio, taken together, of $75,000 for the first
year of the Fund's operation and $125,000 for the second year will be paid to
the Operations Agent and the Administrator.
Operations Agent
Under an operations agency agreement with the Portfolio Trust, Federated
Services Company serves as Operations Agent to the Portfolio. In connection with
its responsibilities as Operations Agent, Federated Services Company, among
other things, (i) prepares governing documents, registration statements and
regulatory filings; (ii) performs internal audit examinations; (iii) prepares
expense projections; (iv) prepares materials for the Trustees of the Portfolio
Trust, (v) coordinates the activities of all service providers; (vi) conducts
compliance training for the Adviser; (vii) prepares investor meeting materials
and (viii) monitors and supervises collection of tax reclaims.
As Operations Agent of the Portfolios, Federated Services Company receives a fee
from each Portfolio, which is computed daily and paid monthly, at the annual
rate of 0.035% of the average daily net assets of each Portfolio for the
Portfolio's then-current fiscal year. The Operations Agent of the Portfolios
will receive a minimum fee of $60,000 per Portfolio annually and a minimum
aggregate fee for each Portfolio, corresponding Fund and any other fund
investing in the Portfolio, taken together, of $75,000 for the first year of the
Portfolio's operation and $125,000 for the second year, in each case payable to
the Operations Agent, and the Administrator.
Administrative Agent
Under an administration agreement with the Portfolio Trust, IBT (Cayman)
provides certain services to the Portfolios, including (i) filing and
maintaining the governing documents, registration statements and other
regulatory filings; (ii) maintaining a telephone line; (iii) approving annual
expense budgets; (iv) authorizing expenses; (v) distributing materials to the
Trustees of the Portfolio Trust; (vi) authorizing dividend distributions; (vii)
maintaining books and records; (viii) filing tax returns; and (ix)maintaining
the investor register.
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 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-5829. It is a
New York corporation organized on October 26, 1993, and is the principal
distributor for a number of investment companies. Edgewood is a subsidiary of
Federated Investors 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 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
Bond Funds and the Class B shares of the Bond Funds, respectively. There is no
assurance that DFM will continue this reimbursement beyond the specified period.
Expenses of Class A Shares and Class B Shares
Holders of Class A shares and Class B shares bear their allocable portion of a
Fund's expenses along with their allocable share of the corresponding
Portfolio's operating expenses. At present, the only expenses which are
allocated specifically to Class A shares and Class B shares as classes are
expenses under the Distribution Plan and expenses under the Service Plan.
However, the Directors reserve the right to allocate certain other expenses to
holders of Class A shares and Class B shares ("Class Expenses"). In any case,
Class Expenses would be limited to: distribution fees; shareholder services
fees; transfer agent fees as identified by the Transfer Agent as attributable to
holders of Class A shares and Class B shares; printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders as attributable to holders of
Class A shares and Class B shares; registration fees paid to the Securities and
Exchange Commission and to state securities commissions as attributable to
holders of Class A shares and Class B shares; expenses related to administrative
personnel and services as required to support holders of Class A shares and
Class B shares; legal fees relating solely to Class A shares or Class B shares;
and Directors' fees incurred as a result of issues related solely to Class A
shares or Class B shares.
Portfolio Brokerage
The estimated annual portfolio turnover rate for the Provesta Portfolio, Investa
Portfolio, Japanese Equity Portfolio, Global Bond Portfolio and European Bond
Portfolio is generally not expected to exceed 180%, 80%, 150%, 350% and 350%,
respectively. A 100% annual turnover rate would occur, for example, if all
portfolio securities (excluding short-term obligations) were replaced once in a
period of one year, or if 10% of the portfolio securities were replaced ten
times in one year. The amount of brokerage commissions and taxes on realized
capital gains to be borne by the shareholders of a Fund tend to increase as the
level of portfolio activity increases.
In effecting securities transactions, the Adviser seeks to obtain the best price
and execution of orders. In selecting a broker, the Adviser considers a number
of factors including: the broker's ability to execute orders without disturbing
the market price; the broker's reliability for prompt, accurate confirmations
and on-time delivery of securities; the broker's financial condition and
responsibility; the research and other investment information provided to the
Adviser by the broker; and the commissions charged. Accordingly, the commissions
charged by any such broker may be greater than the amount another firm might
charge if the Adviser determines in good faith that the amount of such
commissions is reasonable in relation to the value of the brokerage services and
research information provided by such broker.
The Adviser may direct a portion of a Portfolio's securities transactions to
certain unaffiliated brokers which in turn use a portion of the commissions they
receive from a Portfolio to pay other unaffiliated service providers on behalf
of that Portfolio for services provided for which the Portfolio would otherwise
be obligated to pay. Such commissions paid by a Portfolio are at the same rate
paid to other brokers for effecting similar transactions in listed equity
securities.
Deutsche Bank AG or one of its subsidiaries or affiliates may act as one of the
agents of the Portfolios in the purchase and sale of portfolio securities when,
in the judgment of the Adviser, that firm will be able to obtain a price and
execution at least as favorable as other qualified brokers. As one of the
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.
From commencement of operations through February 28, 1998, the Provesta
Portfolio, Investa Portfolio, and Japanese Equity Portfolio paid the following
aggregate brokerage commissions, respectively: $8,896, $6,978, and $10,960. No
brokerage commissions were paid by the Global Bond Portfolio and the European
Bond 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 Bond Funds at the time of
purchase. Certain purchases of Class A shares are not subject to a sales charge.
See "Purchase of Shares--Investing in Class A Shares." As a result, Class A
shares are not subject to any charges when they are redeemed (except for special
programs offered under "Purchase of Shares--Purchases with Proceeds From
Redemptions of Unaffiliated Investment Companies" and except for 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:
<TABLE>
<CAPTION>
Contingent
Year of Redemption Deferred
After Purchase Sales Charge
- ------------------ ------------
<S> <C>
First 5.00%
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>
Class 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 and may separately charge a fee for Fund transactions.)
In connection with any sale, the Distributor may from time to time offer certain
items of nominal value to any shareholder or investor. The Funds reserve the
right to reject any purchase request. An account must be established through a
Financial Intermediary or by completing, signing, and returning the new account
form available from the Funds before shares can be purchased.
Investing in Class A Shares
Class A shares of each Fund are sold at their net asset value next determined
after an order is received, plus a sales charge as follows:
Equity Funds
<TABLE>
<CAPTION>
Sales Charge
as a Percentage of Dealer
----------------------------- Concession as
Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
- --------------------- -------- -------- ---------------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less
than $100,000 4.50% 4.71% 3.75%
$100,000 but less
than $250,000 3.50% 3.63% 2.75%
$250,000 but less
than $500,000 2.50% 2.56% 2.00%
$500,000 but less
than $1 million 2.00% 2.04% 1.75%
$1 million but less
than $2 million None None 1.00%*
$2 million but less
than $5 million None None 0.80%*
$5 million but less
than $50 million None None 0.50%*
$50 million but less
than $100 million None None 0.25%*
$100 million or more None None 0.15%*
</TABLE>
* See "Dealer Concession" below.
Bond Funds
<TABLE>
<CAPTION>
Sales Charge
as a Percentage of Dealer
----------------------------- Concession as
Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
- --------------------- -------- -------- ---------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
$50,000 but less
than $100,000 4.00% 4.17% 3.50%
$100,000 but less
than $250,000 3.50% 3.63% 2.75%
$250,000 but less
than $500,000 2.50% 2.56% 2.00%
$500,000 but less
than $1 million 2.00% 2.04% 1.75%
$1 million but less
than $2 million None None 1.00%*
$2 million but less
than $5 million None None 0.80%*
$5 million but less
than $50 million None None 0.50%*
$50 million but less
than $100 million None None 0.25%*
$100 million or more None None 0.15%*
</TABLE>
* See "Dealer Concession" below.
Dealer Concession
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 acts as custodian for a minor
child;
3. Registered representatives, bank trust officers, certified financial
planners and other employees (and their immediate families) of investment
professionals who have entered into a supplemental agreement with the
Distributor;
4. IRA Rollover accounts sponsored by Deutsche Morgan Grenfell, Inc., Deutsche
Bank Trust Company, or any of their affiliates as administrator, trustee or
custodian, provided that the distribution proceeds are made from a qualified
retirement plan or from a 403(b)(7) plan that is sponsored, administered or
custodied by Deutsche Bank Trust Company or any of its affiliates, and
provided that, at the time of such distribution, such qualified retirement
plan or 403(b)(7) plan met the requirements of an Eligible Benefit Plan and
all or a portion of such plan's assets were invested in the Deutsche Funds
or certain other products made available by the Distributor to such
plans;
5. As part of an Eligible Benefit Plan having a minimum of 250 eligible
employees or a minimum of $1,000,000, or such lesser amount as may be
determined by the Distributor, invested in Deutsche Funds;
6. Investor accounts through certain broker-dealers and other Financial
Intermediaries that have entered into supplemental agreements with the
Distributor, which include a requirement that such shares be sold for the
benefit of clients participating in a "wrap account" or similar program
under which such clients pay a fee to the broker-dealer or other Financial
Intermediary, or such other accounts to which the broker-dealer or other
Financial Intermediary charges an asset management fee;
7. Investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of such investment
advisers or financial planners who place trades for their own accounts if
the accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker or agent;
8. Retirement and deferred compensation plans and trusts used to fund those
plans, including, but not limited to, those defined in section 401(a),
403(b), or 457 of the Code and "rabbi trusts,"
9. Qualified separate accounts maintained by an insurance company pursuant to
the laws of any State or territory of the United States;
10. Trust companies and bank trust departments, including Deutsche Bank Trust
Company and its affiliates, initially investing at least $100,000 of assets
held in a fiduciary, agency, advisory, custodial or similar capacity on
behalf of any one of their investor clients;
11. Accounts investing $100,000 or more of (1) a State or territory of the
United States, county, city or instrumentality thereof, (2) charitable
organizations as defined under Section 501(c)(3) of the Code, and (3)
charitable remainder trusts or life income pools as defined under Section
501(c)(3) of the Code.
Quantity Discounts and Accumulated Purchases
Larger purchases reduce the sales charge paid. A Fund will combine purchases of
Class A shares made on the same day by the investor, the investor's spouse, and
the investor's children under age 21 when it calculates the sales charge. In
addition, the sales charge, if applicable, is reduced for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Class A shares is made in a Fund, the Fund will
consider the previous purchases still invested in the Fund. For example, if a
shareholder already owns Class A shares of an Equity Fund having a current value
at the public offering price of $30,000 and the shareholder purchases $20,000
more at the current public offering price, the sales charge on the additional
purchase according to the schedule now in effect would be 4.50%, not 5.50%.
To receive the sales charge reduction, the Distributor must be notified by the
shareholder in writing or by the shareholder's Financial Intermediary at the
time the purchase is made that Class A shares are already owned or that
purchases are being combined. A Fund will reduce the sales charge after it
confirms the purchases.
Concurrent Purchases
For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of Class A shares of two or more of
the Deutsche Funds, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in Class A shares of one
of the Deutsche Funds with a sales charge, and $20,000 in another Fund, the
sales charge would be reduced to reflect a $50,000 purchase.
To receive this sales charge reduction, the Distributor must be notified by the
shareholder in writing or by the shareholder's Financial Intermediary at the
time the concurrent purchases are made. A Fund will reduce the sales charge
after the purchases are confirmed.
Letter of Intent
If a shareholder intends to purchase at least $50,000 of Class A shares of the
Deutsche Funds (excluding the Deutsche U.S. Money Market Fund) over the next 13
months, the sales charge may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales charge adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the Custodian to hold in escrow (in shares) up to the maximum
sales charge of the total amount intended to be purchased until such purchase is
completed.
The shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed shares may be redeemed in order to realize the
difference in the sales charge.
While this letter of intent will not obligate the shareholder to purchase
shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any shares of any Deutsche Fund,
excluding the Deutsche U.S. Money Market Fund, will be aggregated to provide a
purchase credit towards fulfillment of the letter of intent. Prior trade prices
will not be adjusted.
Reinvestment Privilege
If Class A shares in a Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the next-
determined net asset value without any sales charge. The Distributor must be
notified by the shareholder in writing or by the shareholder's Financial
Intermediary of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems the shareholder's Class A shares in a Fund, there may be tax
consequences. See "Tax Treatment of Reinvestments" below.
Purchases with Proceeds from Redemptions of Unaffiliated Investment Companies
Investors may purchase Class A shares at net asset value, without a sales
charge, with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales charge or commission
and were not distributed by the Distributor. The purchase must be made within 60
days of the redemption, and the Distributor must be notified by the investor in
writing, or by the investor's Financial Intermediary, at the time the purchase
is made. From time to time, the Distributor may offer dealers compensation for
shares purchased under this program. If shares are purchased in this manner,
redemptions of these shares will be subject to a contingent deferred sales
charge for one year from the date of purchase. Shareholders will be notified
prior to the implementation of any special offering as described above.
Tax Treatment of Reinvestments
Generally, a reinvestment of the proceeds of a redemption of shares in a Fund or
an unaffiliated investment company will not alter the federal income tax status
of any capital gain realized on the redemption of the shares. However, any loss
on the disposition of the shares in a Fund will be disallowed to the extent
shares of the same Fund are purchased within a 61-day period beginning 30 days
before and ending 30 days after the disposition of shares. Further, if the
proceeds are reinvested within 90 days after the redeemed shares were acquired,
the sales charge imposed on the original acquisition, to the extent of the
reduction in the sales charge on the reinvestment, will not be taken into
account in determining gain or loss on the disposition of the original shares,
but will be treated instead as incurred in connection with the acquisition of
the replacement shares.
Investing in Class B Shares
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 a Financial Intermediary (such as a bank or an investment
dealer) to place an order to purchase shares. Orders placed through a Financial
Intermediary are considered received when the Fund is notified of the purchase
order. Shares will not be issued in respect of such orders until payment is
converted into federal funds. Purchase orders through a registered broker/dealer
must be received by the broker before 4:00 p.m. (U.S. Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (U.S. Eastern time) in
order for shares to be purchased at that day's price. Purchase orders through
other Financial Intermediaries must be received by the Financial Intermediary
and transmitted to the Fund before 4:00 p.m. (U.S. Eastern time) in order for
shares to be purchased at that day's price. It is the Financial Intermediary's
responsibility to transmit orders promptly. The Financial Intermediary which
maintains investor accounts in Class B shares 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).
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SPECIAL PURCHASE FEATURES
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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.
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EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Class A Shares
Class A shareholders may exchange all or some of their shares for Class A shares
of other Deutsche Funds at relative net asset value. None of the Deutsche Funds
imposes any additional fees on exchanges. Shareholders in certain other Deutsche
Funds may exchange all or some of their shares for Class A shares.
Class B Shares
Class B shareholders may exchange all or some of their shares for Class B shares
of the Deutsche Funds. Contact your Financial Intermediary regarding the
availability of other Class B shares in the Deutsche Funds. Exchanges are made
at net asset value without being assessed a contingent deferred sales charge on
the exchanged shares. To the extent that a shareholder exchanges shares for
Class B shares of other Deutsche Funds, the time for which exchanged-from shares
were held will be credited against the time for which the exchanged-for shares
are required to be held for purposes of satisfying the applicable holding period
in respect of the contingent deferred sales charge. For more information, see
"Contingent Deferred Sales Charge."
Please contact your Financial Intermediary directly or the Distributor for
information on and prospectuses for the Deutsche Funds into which your shares
may be exchanged free of charge.
Requirements for Exchange
Shareholders using this privilege must exchange shares having a net asset value
equal to the minimum investment requirements of the Deutsche Fund into which the
exchange is being made. The shareholder must receive a Prospectus of the
Deutsche Fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
proceeds invested in the same class of shares of the other Fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified in advance of the modification or termination of the exchange
privilege.
Tax Consequences
An exchange will be treated as a taxable sale for federal income tax purposes
and any gain or loss realized will be subject to the rules applicable to
reinvestments (described above under "Tax Treatment of Reinvestments"). See
"Taxes" below for additional information.
Making an Exchange
Instructions for exchanging may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of a Fund may have
difficulty in making exchanges by telephone through brokers and other Financial
Intermediaries during times of drastic economic or market changes. If a
shareholder cannot contact a broker or Financial Intermediary by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to: Deutsche Funds, Inc., c/o Federated Shareholder Services Company, 1099
Hingham Street, Rockland, MA 02370-3317.
Telephone Instructions
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with a Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed, the responsible party may be liable for losses due to
unauthorized or fraudulent telephone instructions. Shares may be exchanged
between two Funds by telephone only if the two Deutsche Funds have identical
shareholder registrations.
Any shares held in certificated form cannot be exchanged by telephone but must
be forwarded to Federated Shareholder Services Company and deposited to the
shareholder's account before being exchanged. Telephone exchange instructions
are recorded and will be binding upon the shareholder. Such instructions will be
processed as of 4:00 p.m. (U.S. Eastern time) and must be received by the Fund
before that time for shares to be exchanged the same day. This privilege may be
modified or terminated at any time.
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REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value, next determined after a Fund
receives the redemption request, less any applicable contingent deferred sales
charge. Redemptions will be made on days on which the Funds compute their net
asset value. Redemption requests must be received in proper form and can be made
as described below.
Redeeming Shares Through a Financial Intermediary
Shares of a Fund may be redeemed by calling your Financial Intermediary to
request the redemption. Shares will be redeemed at the net asset value next
determined after a Fund receives the redemption request from the Financial
Intermediary, less any applicable contingent deferred sales charge. Redemption
requests made through a registered broker/dealer must be received by the broker
before 4:00 p.m. (U.S. Eastern time) and must be transmitted by the broker to a
Fund before 5:00 p.m. (U.S. Eastern time) in order for shares to be redeemed at
that day's net asset value. Redemption requests through other Financial
Intermediaries (such as banks) must be received by the Financial Intermediary
and transmitted to a Fund before 4:00 p.m. (U.S. Eastern time) in order for
shares to be redeemed at that day's net asset value. The Financial Intermediary
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the Financial Intermediary for this service.
Redeeming Shares by Telephone
Shares may be redeemed in any amount by calling a Fund provided that Fund has
received a properly completed authorization form. These forms can be obtained
from the Transfer Agent. Proceeds will be mailed in the form of a check, to the
shareholder's address of record or by wire transfer to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
The minimum amount for a wire transfer is $1,000. Proceeds from redeemed shares
purchased by check or through 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.
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SPECIAL REDEMPTION FEATURES
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Systematic Withdrawal Program
The Systematic Withdrawal Program permits the shareholder to request withdrawal
of a specified dollar amount (minimum $100) on either a monthly or quarterly
basis from accounts with a $10,000 minimum at the time the shareholder elects to
participate in the Systematic Withdrawal Program. Under this program, shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder.
Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to shares, and the fluctuation
of the net asset value of shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in a Fund. In
addition, shareholder accounts are subject to minimum balances. See "Account and
Share Information." For this reason, payments under this program should not be
considered as yield or income on the shareholder's investment in a Fund. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through such shareholder's Financial Intermediary. Due to the fact that
Class A shares are sold with a sales charge, it is not advisable for
shareholders to continue to purchase Class A shares while participating in this
program. A contingent deferred sales charge may be imposed on Class B
shares.
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CONTINGENT DEFERRED SALES CHARGE
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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 such
shareholder became a shareholder of the exchanged-from Fund. Moreover, the
contingent deferred sales charge will be eliminated with respect to certain
redemptions (see "Contingent Deferred Sales Charge--Elimination of Contingent
Deferred Sales Charge").
Elimination of Contingent Deferred Sales Charge
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Code, of a shareholder; (2) redemptions
representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2; and (3) involuntary redemptions by a Fund of shares in shareholder
accounts that do not comply with the minimum balance requirements. No contingent
deferred sales charge will be imposed on redemptions of shares held by Trustees,
employees and sales representatives of the Funds, the distributor, or affiliates
of the Funds or distributor; employees of any Financial Intermediary that sells
shares of the Funds pursuant to a sales agreement with the Distributor; and
spouses and children under the age of 21 of the aforementioned persons. Finally,
no contingent deferred sales charge will be imposed on the redemption of shares
originally purchased through a bank trust department, an investment adviser
registered under the Investment Advisers Act of 1940, or retirement plans where
the third party administrator has entered into certain arrangements with the
Distributor or its affiliates, or any other Financial Intermediary, to the
extent that no payments were advanced for purchases made through such entities.
The Trustees reserve the right to discontinue elimination of the contingent
deferred sales charge. Shareholders will be notified of such elimination. Any
shares purchased prior to the termination of such waiver would have the
contingent deferred sales charge eliminated as provided in the Fund's Prospectus
at the time of the purchase of the shares. If a shareholder making a redemption
qualifies for an elimination of the contingent deferred sales charge, the
shareholder must notify the Distributor or the transfer agent in writing that
such shareholder is entitled to such elimination.
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ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
Certificates and Confirmations
As transfer agent for the Funds, Federated Shareholder Services Company
maintains a Share account for each shareholder. Share certificates are not
issued unless requested in writing to Federated Shareholder Services Company. No
certificates will be issued for fractional shares.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Annual statements are sent to report dividends paid during the year
for the Equity Funds and monthly confirmations are sent to report dividends paid
during that month for the Bond Funds.
Accounts with Low Balances
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value of
$5,000. This requirement does not apply, however, if the balance falls below the
required minimum value because of changes in the net asset value of the
respective share Class. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
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DIVIDENDS AND DISTRIBUTIONS
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Dividends consisting of substantially all of a Fund's net investment income, if
any, are declared and paid annually with respect to the Equity Funds and monthly
with respect to the Bond Funds. A Fund may also declare an additional dividend
of net investment income in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund.
Substantially all the realized net capital gains, if any, of each Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund. All shareholders on the record
date are entitled to dividends and capital gains distributions.
Dividends and distributions paid by a Fund are automatically reinvested in
additional shares of that Fund at net asset value with no sales charge unless
the shareholder has elected to have them paid in cash. Dividends and
distributions to be paid in cash are mailed by check in accordance with the
customer's instructions. Each Fund reserves the right to discontinue, alter or
limit the automatic reinvestment privilege at any time.
U.S. federal regulations require that a shareholder provide a certified taxpayer
identification number ("TIN") upon opening an account. A TIN is either the
Social Security number or employer identification number of the record owner of
the account. Failure to furnish a certified TIN to a Fund could subject a
shareholder to a $50 penalty which will be imposed by the Internal Revenue
Service ("IRS") on the Fund and passed on by the Fund to the shareholder. With
respect to individual investors and certain non-qualified retirement plans, U.S.
federal regulations generally require the Funds to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of any dividends and
distributions (including the proceeds of any redemption) payable to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct, or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on a
federal income tax return. Furthermore, the IRS may notify the Funds to
institute backup withholding if the IRS determines a shareholder's TIN is
incorrect. Backup withholding is not an additional tax; amounts withheld may be
credited against the shareholder's U.S. federal income tax liability.
- --------------------------------------------------------------------------------
NET ASSET VALUE
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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.
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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. Shareholders in each Fund generally
vote in the aggregate and not by class, unless the law expressly requires
otherwise or the Directors determine that the matter to be voted upon affects
only the interests of shareholders of a particular Fund or class of shares. The
voting rights of shareholders are not cumulative. Shares have no preemptive or
conversion rights (other than the automatic conversion of Class B shares into
Class A shares as described under "Purchase of Shares--Conversion of Class B
Shares"). The rights of redemption are described elsewhere herein. Shares are
fully paid and nonassessable by the Corporation. It is the intention of the
Corporation not to hold meetings of shareholders annually. The Directors of the
Corporation may call meetings of shareholders for action by shareholder vote as
may be required by the 1940 Act or as may be permitted by the Articles of
Incorporation or By-laws.
The Corporation's Articles of Incorporation provide that the presence in person
or by proxy of the holders of record of one third of the shares outstanding and
entitled to vote thereat shall constitute a quorum at all meetings of
shareholders of a Fund, except as otherwise required by applicable law. The
Articles of Incorporation further provide that all questions shall be decided by
a majority of the votes cast at any such meeting at which a quorum is present,
except as otherwise required by applicable law.
The Corporation's Articles of Incorporation provide that, at any meeting of
shareholders of a Fund or Class, a Financial Intermediary may vote any shares as
to which that Financial Intermediary is the agent of record and which are
otherwise not represented in person or by proxy at the meeting, proportionately
in accordance with the votes cast by holders of all shares otherwise represented
at the meeting in person or by proxy as to which that Financial Intermediary is
the agent of record. Any shares so voted by a Financial Intermediary are deemed
represented at the meeting for purposes of quorum requirements.
Each Portfolio is a series of the Deutsche Portfolios, a trust organized under
the 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.
As of March 20, 1998, the following shareholders owned 25% or more of the Funds,
and therefore, may for certain purposes be deemed to control the Funds and be
able to affect the outcome of certain matters presented for a vote of
shareholders:
Giuseppi Auricchio, New York, NY, and Robert J. and Diane Pastor, Colts Neck,
NJ, owned 30.65% and 27.92%, respectively, of the voting securities of the Class
A shares of the European Mid-Cap Fund, comprising 30.65% and 27.92%,
respectively, of the total common stock of the Fund.
Federated Administrative Services, Pittsburgh, PA, owned 52.85% of the voting
securities of the Class A shares of the German Equity Fund, comprising 37.00% of
the total common stock of the Fund.
Federated Administrative Services, Pittsburgh, PA, owned 74.75% of the voting
securities of the Class A shares of the Japanese Equity Fund, comprising 74.75%
of the total common stock of the Fund.
Robert J. Pastor, Colts Neck, NJ, Wolf A. Kluge, New York, NY, and Federated
Administrative Services, Pittsburgh, PA, owned 44.54%, 26.54%, and 25.14%,
respectively of the voting securities of the Class A shares of the Global Bond
Fund, comprising 44.54%, 26.54%, and 25.14%, respectively, of the total common
stock of the Fund.
Federated Administrative Services, Pittsburgh, PA, owned 78.69% of the voting
securities of the Class A shares of the European Bond Fund, comprising 78.69% of
the total common stock of the Fund.
- --------------------------------------------------------------------------------
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.
The Taxpayer Relief Act of 1997 creates additional categories of capital gains
taxable at different rates. The categories of gain and related rates will be
passed through to shareholders in capital gains dividends. Shareholders will
report on Form 1040 Schedule D the full amount of capital gain dividends
received from the portfolio and the portion thereof that is taxed at a maximum
28% rate.
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
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
** Not applicable to the Deutsche European Mid-Cap Fund.
*** Not applicable to the Deutsche German Equity Fund.
Regulated Markets in countries which are not members of the European Union and
not contracting states of the treaty on the European Economic Area
Japan**
Over-the-Counter Market
Canada**
Over-the-Counter Market
South Korea**
Over-the Counter Market
Switzerland
Free Trading Zurich, Free Trading Geneva, Exchange Bern
Over the Counter Market of the members of the International Securities Market
Association (ISMA), Zurich
United States**
NASDAQ-System
Over-the-Counter Market (organized markets by the National Association of
Securities Dealers, Inc.)
** Not applicable to the Deutsche European Mid-Cap Fund.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Corporation or the Distributor. This Prospectus
does not constitute an offer by the Corporation or by the Distributor to sell or
a solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Corporation or the
Distributor to make such offer in such jurisdiction.
DEUTSCHE TOP 50 EUROPE
DEUTSCHE EUROPEAN MID-CAP FUND
DEUTSCHE GERMAN EQUITY FUND
DEUTSCHE EUROPEAN BOND FUND
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) (together with the Funds, the "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 ("SEC") in a combined Statement of
Additional Information dated April 30, 1998. This information is incorporated
herein by reference and is available without charge upon written request from
the Funds' transfer agent, Federated Shareholder Services Company, or by calling
toll-free 888-4-DEUTSCHE.
INVESTMENTS IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, DEUTSCHE BANK AG OR ANY OTHER BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN CLASS A SHARES
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 April 30, 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Expense Summary........................................ 2
Financial Highlights................................... 3
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........................ 9
Local Securities Markets.............................. 9
Geographic Investment Emphasis........................ 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 15
Special Purchase Features.............................. 17
Systematic Investment Program......................... 17
Retirement Plans...................................... 17
Exchange Privilege..................................... 17
Class A Shares........................................ 17
Class B Shares........................................ 18
Requirements for Exchange............................. 18
Tax Consequences...................................... 18
Making an Exchange.................................... 18
Telephone Instructions................................ 18
Redemption of Shares................................... 18
Redeeming Shares Through a Financial Intermediary..... 18
Redeeming Shares by Telephone......................... 18
Redeeming Shares by Mail.............................. 19
Special Redemption Features............................ 19
Systematic Withdrawal Program......................... 19
Contingent Deferred Sales Charge....................... 19
Class A Shares........................................ 19
Class B Shares........................................ 19
Class A Shares and Class B Shares..................... 19
Elimination of Contingent Deferred Sales Charge....... 20
Account and Share Information.......................... 20
Certificates and Confirmations........................ 20
Accounts with Low Balances............................ 20
Dividends and Distributions............................ 20
Net Asset Value........................................ 20
Organization........................................... 21
Taxes.................................................. 22
Additional Information................................. 22
Appendix A............................................. 23
</TABLE>
- --------------------------------------------------------------------------------
EXPENSE SUMMARY
- --------------------------------------------------------------------------------
The following table summarizes estimated shareholder transaction and annual
operating expenses of Class A Shares and Class B Shares of each Fund and 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
<TABLE>
<CAPTION>
European
Equity Funds Bond Fund
-------------------- --------------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.50% None 4.50% None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None None None None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) 0.00%(1) 5.00%(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
</TABLE>
(1) Class A Shares purchased without an initial sales charge (i) based on an
initial investment of $1,000,000 or more or (ii) with proceeds of a
redemption of shares of an unaffiliated investment company purchased or
redeemed with a sales charge and not distributed by Edgewood, may be charged
a contingent deferred sales charge of 1.00% for redemptions made within one
full year of purchase. See "Contingent Deferred Sales Charge."
(2) In the first year declining to 1.00% in the sixth year and 0% thereafter.
Expense Table
Annual Operating Expenses (After Expense Reimbursement)
(As a percentage of projected average net assets)
<TABLE>
<CAPTION>
Top 50 Equity Funds European
Europe (except Top 50 Europe) Bond Fund
----------------- ---------------------- -----------------
Class A Class B Class A Class B Class A Class B
------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees 1.00% 1.00% 0.85% 0.85% 0.75% 0.75%
12b-1 Fees
Service 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Distribution 0.00% 0.75% 0.00% 0.75% 0.00% 0.75%
Other Expenses (after expense reimbursement) 0.35% 0.35% 0.50% 0.50% 0.30% 0.30%
----- ----- ----- ----- ----- -----
Total Operating Expenses (after expense reimbursement) 1.60% 2.35% 1.60% 2.35% 1.30% 2.05%
===== ===== ===== ===== ===== =====
</TABLE>
- --------------------------------------------------------------------------------
EXPENSE SUMMARY--CONTINUED
- --------------------------------------------------------------------------------
Example
- --------------------------------------------------------------------------------
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Top 50 Equity Funds European
Europe (except Top 50 Europe) Bond Fund
----------------- ---------------------- -----------------
Class A Class B Class A Class B Class A Class B
------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in a
Fund would bear. Wire transferred redemptions of less than $5,000 may be subject
to additional fees. The fees and expenses included in "Other Expenses" are
estimated for each Fund's first fiscal year and include (i) the fees paid to the
Administrator, Administrative Agent, Operations Agent, Transfer Agent, Fund
Accounting Agent, and Custodian (as each are defined 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.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Unaudited financial highlights for Class A shares of the Funds for the period
from commencement of operations through February 28, 1998, are incorporated
herein by reference to the Semi-Annual Report and supplement to the Prospectus
dated April 30, 1998, which accompanies this Prospectus. Class B shares did not
have any operations through February 28, 1998.
- --------------------------------------------------------------------------------
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 "Directors, Trustees, and Officers" in the
Statement of Additional Information.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AND RESTRICTIONS
- --------------------------------------------------------------------------------
Each Fund seeks to achieve its investment objective by investing all 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, Investa
Portfolio's and Top 50 Europe Portfolio's investment in fixed income securities
(excluding bank deposits and money market instruments) will not exceed 20% of
such Portfolio's net assets. For purposes of each Portfolio's investments,
convertible bonds and bonds with warrants would be considered equities, not
fixed income securities. For the quality criteria of the fixed income securities
in which the Equity Portfolios may invest, see "Quality of Fixed Income
Securities" below.
European Bond Fund
The investment objective of the European Bond Fund is to achieve steady, high
income.
The European Bond Portfolio (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:
. 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"),
. another German domestic authority, or a regional government or local
authority of another Member State or another state party to the CEEA
for which a zero weighting was notified according to Article 7 of the
Council Directive 89/647/EEC of 18 December 1989 on a solvency ratio
for credit institutions (Official Journal EC No. L386, p. 14),
. other corporate bodies or institutions organized under public law and
registered domestically in Germany or in another Member State or
another state party to the CEEA,
. other debtors, if guaranteed as to the payment of interest and
repayment of principal by one of the aforementioned bodies, or
. companies which have issued securities which are admitted to official
listing on a German or other foreign stock exchange.
Investments in Notes are subject to the Top 50 Europe Portfolio's, Provesta
Portfolio's and 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.
Fixed income securities rated Baa by Moody's or BBB by S&P have speculative
characteristics. See Appendix B to the Statement of Additional Information for a
description of these ratings.
Bank Deposits and Money Market Instruments
Each Portfolio may temporarily invest in bank deposits and money market
instruments maturing in less than 12 months. These instruments include credit
balances and bank certificates of deposit, discounted treasury notes and bills
issued by 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's 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 theoption.
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 33 1/3% of a Portfolio's total
assets. The Portfolios may pay reasonable administrative and custodial fees in
connection with the loan of securities. The following conditions will be met
whenever portfolio securities of a Portfolio are loaned: (1) the Portfolio must
receive at least 100% collateral from the borrower; (2) the borrower must
increase such collateral whenever the market value of the securities loaned
rises above the level of the collateral; (3) the Portfolio must be able to
terminate the loan at any time; (4) the Portfolio must receive reasonable
interest on the loan, as well as payments in respect of any dividends, interest
or other distributions on the loaned securities, and any increase in market
value; (5) the Portfolio may pay only reasonable custodian and finder's fees in
connection with the loan; and (6) while voting rights on the loaned securities
may pass to the borrower, the Portfolio must terminate the loan and regain the
right to vote the securities if a material event conferring voting rights and
adversely affecting the investment occurs. In addition, a Portfolio will
consider all facts and circumstances, including the creditworthiness of the
borrowing financial institution. No Portfolio will lend its securities to any
officer, Trustee, Director, employee or other affiliate of the Corporation or
the Portfolio Trust, the Manager, the Adviser or the Distributor, unless
otherwise permitted by applicable law.
Each Portfolio may lend its securities on a demand basis provided the market
value of the assets transferred in securities loans together with the market
value of the securities already transferred as a securities loan for the
Portfolio's account to the same borrower does not exceed 10% of the net assets
of the Portfolio.
Borrowing
Each Portfolio may borrow money from banks for temporary or short-term purposes
and then only in amounts not to exceed 10% of the Portfolio's total assets, at
the time of such borrowing.
Warrants
Each Portfolio may purchase warrants in value of up to 10% of the Portfolio's
net assets. The warrants in which the Portfolios invest are a type of security
that entitles the holder to buy a fixed amount of securities of such issuer at a
specified price at a fixed date or for a fixed period of time (which may be in
perpetuity) or to demand settlement in cash based on the price performance of
the underlying security. If the market price of the underlying security is below
the exercise price set forth in the warrant on the expiration date, the warrant
will expire worthless.
Warrants do not entitle the holder to dividends or voting rights with respect to
the underlying securities and do not represent any rights in the assets of the
issuing company. Also the value of the warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have value if it
is not exercised prior to the expiration date.
Convertible Securities
The convertible securities in which the Portfolios may invest include any debt
securities or preferred stock which may be converted into common stock or which
carry the right to purchase common stock. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
Short-Term Trading
Each Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. A Portfolio may take advantage of short-term trading
opportunities that are consistent with its objective. To the extent a Portfolio
engages in short-term trading, it may realize short-term capital gains or losses
and incur increased transaction costs. See "Taxes" below.
Investment Restrictions
The investment objective of each Fund and each Portfolio, together with the
fundamental investment restrictions described below and in the Statement of
Additional Information, except as noted, are deemed fundamental policies, i.e.,
they may be changed only with the approval of the holders of a majority of the
outstanding voting securities of a Fund and its corresponding Portfolio. Each
Fund has the same investment restrictions as its corresponding Portfolio, except
that each Fund may invest all of its investable assets in the corresponding
Portfolio. References below to the Portfolios' investment restrictions also
include the Funds' investment restrictions. Any other investment policies of the
Portfolios and the Funds described herein or in the Statement of Additional
Information are not fundamental and may be changed without shareholder approval.
Fundamental Investment Restrictions
Each Portfolio is classified as "non-diversified" under the 1940 Act, which
means that each corresponding Fund is not limited by the 1940 Act with respect
to the portion of its assets which may be invested in securities of a single
company (although certain diversification requirements are in effect imposed
by the Internal Revenue Code of 1986, as amended (the "Code")). The possible
assumption of large positions in the securities of a small number of companies
may cause the performance of a Fund to fluctuate to a greater extent than that
of a diversified investment company as a result of changes in the financial
condition or in the market's assessment of the companies.
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.
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RISK FACTORS
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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 78% of the total volume in 1997.
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 40.83% in 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 1997 represented 28.7% of total trading volume on the German
stock exchanges: Deutsche Bank AG with DM 254.7 billion, Daimler Benz AG with DM
233.7 billion, Siemens AG with DM 224.7 billion, Volkswagen AG with DM 192.3
billion, and Bayer AG with DM 145.1 billion.
Geographic Investment Emphasis
From time to time, due to investment opportunities perceived by the Manager to
be attractive, a Portfolio or a Fund may invest a relatively larger portion of
its assets in the issuers of securities domiciled, or principally traded, in one
or more individual countries. In the event that such geographic investment
emphasis occurs, the relevant Portfolio or Fund could be subject to greater risk
due to unanticipated, and negative, economic events and/or market action in such
country or countries.
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MANAGEMENT OF THE CORPORATION
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AND THE PORTFOLIO TRUST
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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 Funds 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 $582 billion and 76,100 employees as of
year-end 1997, Deutsche Bank AG is one of Europe's largest universal banks. It
is engaged in a wide range of financial services, including retail and
commercial banking, investment banking and insurance. Deutsche Bank AG'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 $67.5 billion as of December 31, 1997. DFH and its subsidiaries
employ approximately 560 professionals and is one of the largest mutual fund
operators in Europe based on assets under management.
The primary subsidiary of DFH is DWS. Founded in 1956, it is the largest mutual
fund company in Germany, holding a 25% share of the German mutual fund market
based on assets under management as of December 1997. DFH and its subsidiaries
are known in the financial market as "DWS Group, Investmentgroup of Deutsche
Bank."
DFH subsidiaries have received widespread industry recognition in Europe. For
example, Micropal, Europe's leading fund rating organization, has accorded DWS
the following awards: 1994: best fund manager for 1-, 3-, and 5-year periods;
1995: best fund manager for 1-, 3-, and 5-year periods; 1996: best fund manager
for 3- and 5-year periods; 1997: best fund manager for 3- and 5-year periods.
These awards were given to fund managers having 10 or more funds registered for
sale in Germany, based on the manager with the highest number of funds ranked
first within various categories of investment objective defined by Micropal.
Fund rankings are based on above-average performance in Deutsche Mark ("DM")
terms and below-average volatility.
Subject to the overall supervision of the Portfolio Trust's Trustees, DFM is
responsible for the day-to-day investment decisions, the execution of portfolio
transactions and the general management of each Portfolio's investments and
provides certain supervisory services. Under its investment management agreement
with the Portfolio Trust (the "Management Agreement"), DFM is permitted, subject
to the approval of the Board of Trustees of the Portfolio Trust, to delegate to
a third party responsibility for management of the investment operations of each
Portfolio. DFM has delegated this responsibility to the Adviser. DFM retains
overall responsibility, however, for supervision of the investment management
program for each Portfolio. See "Manager" in the Statement of Additional
Information.
As compensation for the services rendered and related expenses borne by DFM
under the Management Agreement with the Portfolio Trust with respect to each
Portfolio, DFM receives a fee from such Portfolio, which is computed daily and
paid monthly, equal to 1.00% (Top 50 Europe Portfolio), 0.85% (Provesta
Portfolio and Investa Portfolio) or 0.75% (European Bond Portfolio) of the
average daily net assets of the Portfolio on an annualized basis for the
Portfolio's then-current fiscal year. See also "Expenses."
Adviser
Pursuant to an investment advisory agreement ("Advisory Agreement") between DFM
and DWS International Portfolio Management GmbH, the Adviser provides investment
advice and portfolio management services to each Portfolio. Subject to the
overall supervision of DFM, the Adviser conducts the day-to-day investment
decisions of each Portfolio, arranges for the execution of portfolio
transactions and furnishes a continuous investment program for each Portfolio.
The Adviser is an SEC-registered investment adviser and an indirect subsidiary
of Deutsche Bank AG. The offices of the Adviser are located at Grueneburgweg
113-115, 60323 Frankfurt am Main, Germany.
For these services, the Adviser receives from DFM a fee, which is computed daily
and may be paid monthly, equal to 0.75% of the average daily net assets of the
Top 50 Europe Portfolio, 0.60% of the average daily net assets of each of the
Provesta Portfolio and the Investa Portfolio and 0.50% of the average daily net
assets of the European Bond Portfolio on an annualized basis for the Portfolio's
then-current fiscal year.
Historical Performance of Corresponding DWS Funds
Provesta and Investa are German-registered mutual funds and are referred to
herein as the "DWS Funds." Each of their investment policies and restrictions
are the same as those of the corresponding Provesta and Investa Portfolios
except as noted below. The Provesta Portfolio and Investa Portfolio (and
therefore indirectly the corresponding European Mid-Cap Fund and German Equity
Fund) are designed to produce investment results substantially the same as the
DWS Funds, Provesta and Investa, respectively. The Provesta Portfolio and
Investa Portfolio seek to accomplish this by duplicating to the extent practical
the portfolio holdings and transactions of Provesta and Investa. The Adviser
manages the investment operations of each Portfolio with a portfolio manager and
a staff of investment professionals that is composed of the same persons as
those that manage and have full discretionary authority over the selection of
investments for the corresponding DWS Fund.
The European Mid-Cap Fund and its corresponding Provesta Portfolio and the
German Equity Fund and its corresponding Investa Portfolio commenced operations
in 1997 and have no prior 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 (each with differing diversification requirements, specific tax
restrictions and investment limitations). Since the historical performance of
the DWS Funds would not have been materially affected by the differences in the
regulation of investment companies under U.S. federal securities and tax laws
and regulations, the differences in regulation are not expected to result in any
material differences in performance (net of fees) between the DWS Funds and
their corresponding Portfolios going forward. Investors should note that the
past performance of the DWS Funds is not predictive of the future performance of
the European Mid-Cap Fund or the German Equity Fund or their corresponding
Portfolios.
The following tables show the average annualized total return for the Provesta
and Investa Funds for the one-, three-, five- and ten-year periods ended March
31, 1998 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 March 31, 1998
<TABLE>
<CAPTION>
Historical Performance
in U.S. Dollars CDAX Index
------------------------------------ -----------------
Without With (in U.S. Dollars,
Sales Load(2) Sales Load(3) Annualized)(4)
------------- ------------- -----------------
<S> <C> <C> <C>
One Year 29.36% 22.25% 29.46%
Three Years 21.68% 19.41% 20.68%
Five Years 16.84% 15.53% 15.08%
Ten Years 15.98% 15.33% 13.84%
</TABLE>
(1) Net Assets as of 3/31/98 were DM 1,920 million ($1,047 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 Bsrse AG.
INVESTA(1)
(Corresponding to the Investa Portfolio
and German Equity Fund)
Average Annual Return for the Periods Ended March 31,1998
<TABLE>
<CAPTION>
Historical Performance
in U.S. Dollars DAX Index
------------------------------------ -----------------
Without With (in U.S. Dollars,
Sales Load(2) Sales Load(3) Annualized)(4)
------------- ------------- -----------------
<S> <C> <C> <C>
One Year 35.02% 27.59% 35.18%
Three Years 26.14% 23.78% 25.75%
Five Years 18.50% 17.17% 18.10%
Ten Years 16.28% 15.62% 15.71%
</TABLE>
(1) Assets as of 3/31/98 were DM 4,478 million ($2,441 million). Investa
commenced investment operations in December 1956.
(2) The sales load may be reduced or eliminated on the purchase of Class A
Shares in certain circumstances. See "Purchase of Shares--Reducing or
Eliminating the Sales Charge."
(3) Adjusted to reflect deduction for the maximum sales charge of 5.50%
applicable to Class A Shares.
(4) DAX is a total rate of return index consisting of 30 selected German stocks
traded on the Frankfurt Stock Exchange. "DAX" is a registered trademark of
Deutsche Bsrse AG.
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 5.1 billion ($2.8
billion) as of January 30, 1998. Ms. Weisenhorn also serves as the senior
portfolio manager for the Investa Portfolio and the Provesta Portfolio. Ms.
Weisenhorn also serves as portfolio manager for Investa and Provesta, the
Portfolios' corresponding DWS Funds. She has held this position since 1991. Ms.
Weisenhorn has 13 years of experience as an investment manager and joined the
DWS Group in 1985. She is Senior Investment Officer, head of the German equity
team, supervising funds holding assets under management of DM 13.9 billion ($7.7
billion) as of January 30, 1998. Mr. Martini and Ms. Weisenhorn are based at DWS
Group's office in Frankfurt, Germany.
Heinz-Wilhelm Fesser is senior portfolio manager for the European Bond
Portfolio. Mr. Fesser also serves as the senior portfolio manager for the Global
Bond Portfolio, an additional series of the Portfolio Trust. Mr. Fesser joined
the DWS Group in 1987, where he has been engaged in the management of global
fixed income funds. He is Senior Investment Officer, head of the global
fixed-income team, supervising funds holding assets under management of DM 23.2
billion ($12.9 billion) as of January 30, 1998.
Administrator
Under a master agreement for administration services with the Corporation,
Federated Services Company serves as Administrator to the Funds. In connection
with its responsibilities as Administrator, Federated Services Company, among
other things (i) prepares, files and maintains the Funds' governing documents,
registration statements and regulatory documents; (ii) prepares and coordinates
the printing of publicly disseminated documents; (iii) monitors declaration and
payment of dividends and distributions; (iv) projects and reviews
the Funds' expenses; (v) performs internal audit examinations; (vi)prepares and
distributes materials to the Directors of the Corporation, (vii) coordinates the
activities of all service providers; (viii) monitors and supervises collection
of tax reclaims; and (ix) prepares shareholder meeting materials.
As Administrator, Federated Services Company receives a fee from each Fund,
which is computed daily and may be paid monthly, at the annual rate of 0.065% of
the average daily net assets of each Fund up to $200 million and 0.0525% of the
average daily net assets of each Fund greater than $200 million for the Fund's
then-current fiscal year. The Administrator will receive a minimum fee of
$75,000 per Fund annually, except that during the first two years of the
agreement a minimum aggregate fee for each Portfolio, corresponding Fund and any
other fund investing in the Portfolio, taken together, of $75,000 for the first
year of the Fund's operation and $125,000 for the second year will be paid to
the Operations Agent and the Administrator.
Operations Agent
Under an operations agency agreement with the Portfolio Trust, Federated
Services Company serves as Operations Agent to the Portfolios. In connection
with its responsibilities as Operations Agent, Federated Services Company, among
other things, (i) prepares governing documents, registration statements and
regulatory filings; (ii) performs internal audit examinations; (iii) prepares
expense projections; (iv) prepares materials for the Trustees of the Portfolio
Trust, (v) coordinates the activities of all service providers; (vi) conducts
compliance training for the Adviser; (vii) prepares investor meeting materials
and (viii) monitors and supervises collection of tax reclaims.
As Operations Agent of the Portfolios, Federated Services Company receives a fee
from each Portfolio, which is computed daily and paid monthly, at the annual
rate of 0.035% of the average daily net assets of each Portfolio for the
Portfolio's then-current fiscal year. The Operations Agent of the Portfolios
will receive a minimum fee of $60,000 per Portfolio annually and a minimum
aggregate fee for each Portfolio, corresponding Fund and any other fund
investing in the Portfolio, taken together, of $75,000 for the first year of the
Portfolio's operation and $125,000 for the second year, in each case payable to
the Operations Agent and the Administrator.
Administrative Agent
Under an administration agreement with the Portfolio Trust, IBT (Cayman)
provides certain services to the Portfolios, including (i) filing and
maintaining the governing documents, registration statements and other
regulatory filings; (ii) maintaining a telephone line; (iii) approving annual
expense budgets; (iv) authorizing expenses; (v) distributing materials to the
Trustees of the Portfolio Trust; (vi) authorizing dividend distributions; (vii)
maintaining books and records; (viii) filing tax returns; and (ix) maintaining
the investor register.
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 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-5829. It is a
New York corporation organized on October 26, 1993, and is the principal
distributor for a number of investment companies. Edgewood is a subsidiary of
Federated Investors 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. From commencement of operations through February
28, 1998, the Top 50 Europe Portfolio, Provesta Portfolio, and Investa Portfolio
paid the following aggregate brokerage commissions, respectively: $16,435,
$8,896, and $6,978. No brokerage commissions were paid by the European Bond
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. 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 are not
subject to a sales charge. See "Purchase of Shares--Investing in Class A
Shares." Certain purchases of Class A Shares qualify for reduced sales charges.
See "Purchase of Shares--Reducing or Eliminating the Sales Charge." Class A
Shares have no conversion feature.
Class B Shares
Class B Shares of each Fund are sold without an initial sales charge, but are
subject to a contingent deferred sales charge in accordance with the following
schedule:
<TABLE>
<CAPTION>
Contingent
Year of Redemption Deferred
After Purchase Sales Charge
- ------------------ ------------
<S> <C>
First 5.00%
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>
Class 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 and may separately charge a fee for Fund transactions).
In connection with any sale, the Distributor may from time to time offer certain
items of nominal value to any shareholder or investor. The Funds reserve the
right to reject any purchase request. An account must be established through a
Financial Intermediary or by completing, signing, and returning the new account
form available from the Funds before shares can be purchased.
Investing in Class A Shares
Class A Shares of each Fund are sold at their net asset value next determined
after an order is received, plus a sales charge as follows:
<TABLE>
<CAPTION>
Equity Funds
Sales Charge
as a Percentage of Dealer
------------------ Concession as
Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
- --------------------- -------- -------- ---------------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less
than $100,000 4.50% 4.71% 3.75%
$100,000 but less
than $250,000 3.50% 3.63% 2.75%
$250,000 but less
than $500,000 2.50% 2.56% 2.00%
$500,000 but less
than $1 million 2.00% 2.04% 1.75%
$1 million but less
than $2 million None None 1.00%*
$2 million but less
than $5 million None None 0.80%*
$5 million but less
than $50 million None None 0.50%*
$50 million but less
than $100 million None None 0.25%*
$100 million or more None None 0.15%*
</TABLE>
* See "Dealer Concession" below.
European Bond Fund
<TABLE>
<CAPTION>
Sales Charge
as a Percentage of Dealer
------------------ Concession as
Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
- --------------------- -------- -------- ---------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
$50,000 but less
than $100,000 4.00% 4.17% 3.50%
$100,000 but less
than $250,000 3.50% 3.63% 2.75%
$250,000 but less
than $500,000 2.50% 2.56% 2.00%
$500,000 but less
than $1 million 2.00% 2.04% 1.75%
$1 million but less
than $2 million None None 1.00%*
$2 million but less
than $5 million None None 0.80%*
$5 million but less
than $50 million None None 0.50%*
$50 million but less
than $100 million None None 0.25%*
$100 million or more None None 0.15%*
</TABLE>
*See "Dealer Concession" below.
Dealer Concession
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 acts as custodian for a minor
child;
3. Registered representatives, bank trust officers, certified financial
planners and other employees (and their immediate families) of investment
professionals who have entered into a supplemental agreement with the
Distributor;
4. IRA Rollover accounts sponsored by Deutsche Morgan Grenfell, Inc., Deutsche
Bank Trust Company, or any of their affiliates as administrator, trustee or
custodian, provided that the distribution proceeds are made from a qualified
retirement plan or from a 403(b)(7) plan that is sponsored, administered or
custodied by Deutsche Bank Trust Company or any of its affiliates, and
provided that, at the time of such distribution, such qualified retirement
plan or 403(b)(7) plan met the requirements of an Eligible Benefit Plan and
all or a portion of such plan's assets were invested in the Deutsche Funds
or certain other products made available by the Distributor to such plans;
5. As part of an Eligible Benefit Plan having a minimum of 250 eligible
employees or a minimum of $1,000,000, or such lesser amount as may be
determined by the Distributor, invested in Deutsche Funds;
6. Investor accounts through certain broker-dealers and other Financial
Intermediaries that have entered into supplemental agreements with the
Distributor, which include a requirement that such shares be sold for the
benefit of clients participating in a "wrap account" or similar program
under which such clients pay a fee to the broker-dealer or other Financial
Intermediary, or such other accounts to which the broker-dealer or other
Financial Intermediary charges an asset management fee;
7. Investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of such investment
advisers or financial planners who place trades for their own accounts if
the accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker or agent;
8. Retirement and deferred compensation plans and trusts used to fund those
plans, including, but not limited to, those defined in section 401(a),
403(b), or 457 of the Code and "rabbi trusts;"
9. Qualified separate accounts maintained by an insurance company pursuant to
the laws of any State or territory of the United States;
10. Trust companies and bank trust departments, including Deutsche Bank Trust
Company and its affiliates, initially investing at least $100,000 of assets
held in a fiduciary, agency, advisory, custodial or similar capacity on
behalf of any one of their investor clients;
11. Accounts investing $100,000 or more of (1) a State or territory of the
United States, county, city or instrumentality thereof, (2) charitable
organizations as defined under Section 501(c)(3) of the Code, and (3)
charitable remainder trusts or life income pools as defined under Section
501(c)(3) of the Code.
Quantity Discounts and Accumulated Purchases
Larger purchases reduce the sales charge paid. A Fund will combine purchases of
Class A Shares made on the same day by the investor, the investor's spouse, and
the investor's children under age 21 when it calculates the sales charge. In
addition, the sales charge, if applicable, is reduced for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Class A Shares is made in a Fund, the Fund will
consider the previous purchases still invested in the Fund. For example, if a
shareholder already owns Class A Shares of an Equity Fund having a current value
at the public offering price of $30,000 and the shareholder purchases $20,000
more at the current public offering price, the sales charge on the additional
purchase according to the schedule now in effect would be 4.50%, not 5.50%.
To receive the sales charge reduction, the Distributor must be notified by the
shareholder in writing or by the shareholder's Financial Intermediary at the
time the purchase is made that Class A Shares are already owned or that
purchases are being combined. A Fund will reduce the sales charge after it
confirms the purchases.
Concurrent Purchases
For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of Class A Shares of two or more of
the Deutsche Funds, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in Class A Shares of one
of the Deutsche Funds with a sales charge, and $20,000 in another Fund, the
sales charge would be reduced to reflect a $50,000 purchase.
To receive this sales charge reduction, the Distributor must be notified by the
shareholder in writing or by the shareholder's Financial Intermediary at the
time the concurrent purchases are made. A Fund will reduce the sales charge
after the purchases are confirmed.
Letter of Intent
If a shareholder intends to purchase at least $50,000 of Class A Shares of the
Deutsche Funds (excluding the Deutsche U.S. Money Market Fund) over the next 13
months, the sales charge may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales charge adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the Custodian to hold in escrow (in shares) up to the maximum
sales charge of the total amount intended to be purchased until such purchase is
completed.
The shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed shares may be redeemed in order to realize the
difference in the sales charge.
While this letter of intent will not obligate the shareholder to purchase
shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any shares of any Deutsche Fund,
excluding the Deutsche U.S. Money Market Fund, will be aggregated to provide a
purchase credit towards fulfillment of the letter of intent. Prior trade prices
will not be adjusted.
Reinvestment Privilege
If Class A Shares in a Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the next-
determined net asset value without any sales charge. The Distributor must be
notified by the shareholder in writing or by the shareholder's Financial
Intermediary of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems Class A Shares in a Fund, there may be tax consequences. See
"Tax Treatment of Reinvestments" below.
Purchases with Proceeds from Redemptions
of Unaffiliated Investment Companies
Investors may purchase Class A Shares at net asset value, without a sales
charge, with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales charge or commission
and were not distributed by the Distributor. The purchase must be made within 60
days of the redemption, and the Distributor must be notified by the investor in
writing, or by the investor's Financial Intermediary, at the time the purchase
is made. From time to time, the Distributor may offer dealers compensation for
shares purchased under this program. If shares are purchased in this manner,
redemptions of these shares will be subject to a contingent deferred sales
charge for one year from the date of purchase. Shareholders will be notified
prior to the implementation of any special offering as described above.
Tax Treatment of Reinvestments
Generally, a reinvestment of the proceeds of a redemption of shares in a Fund or
an unaffiliated investment company will not alter the federal income tax status
of any capital gain realized on the redemption of the shares. However, any loss
on the disposition of the shares in a Fund will be disallowed to the extent
shares of the same Fund are purchased within a 61-day period beginning 30 days
before and ending 30 days after the disposition of shares. Further, if the
proceeds are reinvested within 90 days after the redeemed shares were acquired,
the sales charge imposed on the original acquisition, to the extent of the
reduction in the sales charge on the reinvestment, will not be taken into
account in determining gain or loss on the disposition of the original shares,
but will be treated instead as incurred in connection with the acquisition of
the replacement shares.
Investing in Class B Shares
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 a Financial Intermediary (such as a bank or an investment
dealer) to place an order to purchase shares. Orders placed through a Financial
Intermediary are considered received when the Fund is notified of the purchase
order. Shares will not be issued in respect of such orders until payment is
converted into federal funds. Purchase orders through a registered broker/dealer
must be received by the broker before 4:00 p.m. (U.S. Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (U.S. Eastern time) in
order for shares to be purchased at that day's price. Purchase orders through
other Financial Intermediaries must be received by the Financial Intermediary
and transmitted to the Fund before 4:00 p.m. (U.S. Eastern time) in order for
shares to be purchased at that day's price. It is the Financial Intermediary's
responsibility to transmit orders promptly.
The Financial Intermediary which maintains investor accounts in Class B Shares
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 a broker or Financial Intermediary by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to: Deutsche Funds, Inc., c/o Federated Shareholder Services Company, 1099
Hingham Street, Rockland, MA 02370-3317.
Telephone Instructions
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with a Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed, the responsible party may be liable for losses due to
unauthorized or fraudulent telephone instructions. Shares may be exchanged
between two Funds by telephone only if the two Deutsche Funds have identical
shareholder registrations.
Any shares held in certificated form cannot be exchanged by telephone but must
be forwarded to Federated Shareholder Services Company and deposited to the
shareholder's account before being exchanged. Telephone exchange instructions
are recorded and will be binding upon the shareholder. Such instructions will be
processed as of 4:00 p.m. (U.S. Eastern time) and must be received by the Fund
before that time for shares to be exchanged the same day. This privilege may be
modified or terminated at any time.
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value, next determined after a Fund
receives the redemption request, less any applicable contingent deferred sales
charge. Redemptions will be made on days on which the Funds compute their net
asset value. Redemption requests must be received in proper form and can be made
as described below.
Redeeming Shares Through
a Financial Intermediary
Shares of a Fund may be redeemed by calling your Financial Intermediary to
request the redemption. Shares will be redeemed at the net asset value next
determined after a Fund receives the redemption request from the Financial
Intermediary, less any applicable contingent deferred sales charge. Redemption
requests made through a registered broker/dealer must be received by the broker
before 4:00 p.m. (U.S. Eastern time) and must be transmitted by the broker to a
Fund before 5:00 p.m. (U.S. Eastern time) in order for shares to be redeemed at
that day's net asset value. Redemption requests through other Financial
Intermediaries (such as banks) must be received by the Financial Intermediary
and transmitted to a Fund before 4:00 p.m. (U.S. Eastern time) in order for
shares to be redeemed at that day's net asset value. The Financial Intermediary
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the Financial Intermediary for this service.
Redeeming Shares by Telephone
Shares may be redeemed in any amount by calling a Fund provided that Fund has
received a properly completed authorization form. These forms can be obtained
from the Transfer Agent. Proceeds will be mailed in the form of a check, to the
shareholder's address of record or by wire transfer to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
The minimum amount for a wire transfer is $1,000. Proceeds from redeemed shares
purchased by check or through ACH will not be wired until the payment has
cleared. Proceeds from redemption requests received on holidays when wire
transfers are restricted will be wired the following business day.
Telephone instructions will be recorded. If reasonable procedures are not
followed by a Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, redemption by mail (see "Redeeming Shares by Mail") should be
considered. If at any time a Fund shall determine it necessary to terminate or
modify the telephone redemption privilege, shareholders would be promptly
notified.
Redeeming Shares by Mail
Shares may be redeemed in any amount by mailing a written request to: Deutsche
Funds, Inc., Federated Shareholder Services Company, P.O. Box 8612, Boston, MA
02266-8612. If share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: Fund Name and the share Class name; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days after receipt of a proper written redemption request. Dividends are
paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record, must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined by the Securities and Exchange Act of 1934,
as amended. The Funds do not accept signatures guaranteed by a notary public.
Each Fund and the Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. A Fund may elect in the future to limit
eligible signature guarantors to institutions that are members of a signature
guarantee program. Each Fund and the Transfer Agent reserve the right to amend
these standards at any time without notice.
- --------------------------------------------------------------------------------
SPECIAL REDEMPTION FEATURES
- --------------------------------------------------------------------------------
Systematic Withdrawal Program
The Systematic Withdrawal Program permits the shareholder to request withdrawal
of a specified dollar amount (minimum $100) on either a monthly or quarterly
basis from accounts with a $10,000 minimum at the time the shareholder elects to
participate in the Systematic Withdrawal Program. Under this program, shares are
redeemed to provide for periodic withdrawal payments in an amount directed by
the shareholder.
Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to shares, and the fluctuation
of the net asset value of shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in a Fund. In
addition, shareholder accounts are subject to minimum balances. See "Account and
Share Information." For this reason, payments under this program should not be
considered as yield or income on the shareholder's investment in a Fund. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through such shareholder's Financial Intermediary. Due to the fact that
Class A Shares are sold with a sales charge, it is not advisable for
shareholders to continue to purchase Class A Shares while participating in this
program. A contingent deferred sales charge may be imposed on Class B Shares.
- --------------------------------------------------------------------------------
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 such
shareholder became a shareholder of the exchanged-from Fund. Moreover, the
contingent deferred sales charge will be eliminated with respect to certain
redemptions (see "Contingent Deferred Sales Charge--Elimination of Contingent
Deferred Sales Charge").
Elimination of Contingent Deferred Sales Charge
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Code, of a shareholder; (2) redemptions
representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of 70
1/2; and (3) involuntary redemptions by a Fund of shares in shareholder accounts
that do not comply with the minimum balance requirements. No contingent deferred
sales charge will be imposed on redemptions of shares held by Trustees,
employees and sales representatives of the Funds, the distributor, or affiliates
of the Funds or distributor; employees of any Financial Intermediary that sells
shares of the Funds pursuant to a sales agreement with the Distributor; and
spouses and children under the age of 21 of the aforementioned persons. Finally,
no contingent deferred sales charge will be imposed on the redemption of shares
originally purchased through a bank trust department, an investment adviser
registered under the Investment Advisers Act of 1940, or retirement plans where
the third party administrator has entered into certain arrangements with the
Distributor or its affiliates, or any other Financial Intermediary, to the
extent that no payments were advanced for purchases made through such entities.
The Trustees reserve the right to discontinue elimination of the contingent
deferred sales charge. Shareholders will be notified of such elimination. Any
shares purchased prior to the termination of such waiver would have the
contingent deferred sales charge eliminated as provided in the Fund's Prospectus
at the time of the purchase of the shares. If a shareholder making a redemption
qualifies for an elimination of the contingent deferred sales charge, the
shareholder must notify the Distributor or the transfer agent in writing that
such shareholder is entitled to such elimination.
- --------------------------------------------------------------------------------
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
Certificates and Confirmations
As transfer agent for the Funds, Federated Shareholder Services Company
maintains a Share account for each shareholder. Share certificates are not
issued unless requested in writing to Federated Shareholder Services Company. No
certificates will be issued for fractional shares.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Annual statements are sent to report dividends paid during the year
for the Equity Funds and monthly confirmations are sent to report dividends paid
during that month for the European Bond Fund.
Accounts with Low Balances
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value of
$5,000. This requirement does not apply, however, if the balance falls below the
required minimum value because of changes in the net asset value of the
respective share Class. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Dividends consisting of substantially all of a Fund's net investment income, if
any, are declared and paid annually with respect to the Equity Funds and monthly
with respect to the European Bond Fund. A Fund may also declare an additional
dividend of net investment income in a given year to the extent necessary to
avoid the imposition of federal excise tax on the Fund.
Substantially all the realized net capital gains, if any, of each Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund. All shareholders on the record
date are entitled to dividends and capital gains distributions.
Dividends and distributions paid by a Fund are automatically reinvested in
additional shares of that Fund at net asset value with no sales charge unless
the shareholder has elected to have them paid in cash. Dividends and
distributions to be paid in cash are mailed by check in accordance with the
customer's instructions. Each Fund reserves the right to discontinue, alter or
limit the automatic reinvestment privilege at any time.
U.S. federal regulations require that a shareholder provide a certified taxpayer
identification number ("TIN") upon opening an account. A TIN is either the
Social Security number or employer identification number of the record owner of
the account. Failure to furnish a certified TIN to a Fund could subject a
shareholder to a $50 penalty which will be imposed by the Internal Revenue
Service ("IRS") on the Fund and passed on by the Fund to the shareholder. With
respect to individual investors and certain non-qualified retirement plans, U.S.
federal regulations generally require the Funds to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of any dividends and
distributions (including the proceeds of any redemption) payable to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct, or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on a
federal income tax return. Furthermore, the IRS may notify the Funds to
institute backup withholding if the IRS determines a shareholder's TIN is
incorrect. Backup withholding is not an additional tax; amounts withheld may be
credited against the shareholder's U.S. federal income tax liability.
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
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. Shareholders in each Fund generally
vote in the aggregate and not by class, unless the law expressly requires
otherwise or the Directors determine that the matter to be voted upon affects
only the interests of shareholders of a particular Fund or class of shares. The
voting rights of shareholders are not cumulative. Shares have no preemptive or
conversion rights (other than the automatic conversion of Class B Shares into
Class A Shares as described under "Purchase of Shares--Conversion of Class B
Shares"). The rights of redemption are described elsewhere herein. Shares are
fully paid and nonassessable by the Corporation. It is the intention of the
Corporation not to hold meetings of shareholders annually. The Directors of the
Corporation may call meetings of shareholders for action by shareholder vote as
may be required by the 1940 Act or as may be permitted by the Articles of
Incorporation or By-laws.
The Corporation's Articles of Incorporation provide that the presence in person
or by proxy of the holders of record of one third of the shares outstanding and
entitled to vote thereat shall constitute a quorum at all meetings of
shareholders of a Fund, except as otherwise required by applicable law. The
Articles of Incorporation further provide that all questions shall be decided by
a majority of the votes cast at any such meeting at which a quorum is present,
except as otherwise required by applicable law.
The Corporation's Articles of Incorporation provide that, at any meeting of
shareholders of a Fund or Class, a Financial Intermediary may vote any shares as
to which that Financial Intermediary is the agent of record and which are
otherwise not represented in person or by proxy at the meeting, proportionately
in accordance with the votes cast by holders of all shares otherwise represented
at the meeting in person or by proxy as to which that Financial Intermediary is
the agent of record. Any shares so voted by a Financial Intermediary are deemed
represented at the meeting for purposes of quorum requirements.
Each Portfolio is a series of the Deutsche Portfolios, a trust organized under
the 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.
As of March 20, 1998, the following shareholders owned 25% or more of the Funds,
and therefore, may for certain purposes be deemed to control the Funds and be
able to affect the outcome of certain matters presented for a vote of
shareholders:
Federated Administrative Services, Pittsburgh, PA, owned 58.73% of the voting
securities of the Class A shares of the Top 50 Europe Fund, comprising 58.73% of
the total common stock of the Fund.
Giuseppi Auricchio, New York, NY, and Robert J. and Diane Pastor, Colts Neck,
NJ, owned 30.65% and 27.92%, respectively, of the voting securities of the Class
A shares of the European Mid-Cap Fund, comprising 30.65% and 27.92%,
respectively, of the total common stock of the Fund.
Federated Administrative Services, Pittsburgh, PA, owned 52.85% of the voting
securities of the Class A shares of the German Equity Fund, comprising 37.00% of
the total common stock of the Fund.
Federated Administrative Services, Pittsburgh, PA, owned 78.69% of the voting
securities of the Class A shares of the European Bond Fund, comprising 78.69% of
the total common stock of the Fund.
- --------------------------------------------------------------------------------
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.
The Taxpayer Relief Act of 1997 creates additional categories of capital gains
taxable at different rates. The categories of gain and related rates will be
passed through to shareholders in capital gains dividends. Shareholders will
report on Form 1040 Schedule D the full amount of capital gain dividends
received from the portfolio and the portion thereof that is taxed at a maximum
28% rate.
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
South Africa
Johannesburg
South Korea
Seoul
Taiwan***
Taipei
Thailand
Bangkok
USA
American Stock Exchange (AMEX), Boston, Chicago, Cincinnati, New York, New
York Stock Exchange (NYSE), Philadelphia, San Francisco Pacific Stock
Exchange, Los Angeles Pacific Stock Exchange
Regulated Markets in countries which are not members of the European Union and
not contracting states of the treaty on the European Economic Area
Japan**
Over-the-Counter Market
Canada**
Over-the-Counter Market
South Korea**
Over-the Counter Market
** Not applicable to the Deutsche European Mid-Cap Fund.
*** Not applicable to the Deutsche German Equity Fund.
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.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Corporation or the Distributor. This Prospectus
does not constitute an offer by the Corporation or by the Distributor to sell or
a solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Corporation or the
Distributor to make such offer in such jurisdiction.
Deutsche Top 50 Europe
Deutsche Top 50 Asia
Deutsche Top 50 US
Deutsche European Mid-Cap Fund
Deutsche German Equity Fund
Deutsche Japanese Equity Fund
Deutsche Global Bond Fund
Deutsche European Bond Fund
Class A Shares and Class B Shares
Statement of Additional Information
The Deutsche Top 50 World (the "Top 50 World"), Deutsche Top 50 Europe (the "Top
50 Europe"), Deutsche Top 50 Asia (the "Top 50 Asia"), Deutsche Top 50 US (the
"Top 50 US"), Deutsche European Mid-Cap Fund (the "European Mid-Cap Fund"),
Deutsche German Equity Fund (the "German Equity Fund"), Deutsche Japanese Equity
Fund (the "Japanese Equity Fund"), Deutsche Global Bond Fund (the "Global Bond
Fund") and Deutsche European Bond Fund (the "European Bond Fund") (each a "Fund"
and, collectively, the "Funds") are each a series of the Deutsche Funds, Inc.
(the "Corporation"), a management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). Each Fund has its
own investment objective.
The Corporation seeks to achieve the investment objective of each Fund by
investing all of the Fund's investable assets in a corresponding
non-diversified, open-end management investment company (each, a "Portfolio"
and, collectively, the "Portfolios") listed in Appendix A.
Each Portfolio is a series of the Deutsche Portfolios (the "Portfolio Trust"),
an open-end investment company organized as a trust under the laws of the State
of New York. Each Portfolio has the same investment objective as its
corresponding Fund. There can be no assurance that any Fund or any Portfolio
will achieve its investment objective.
Shares of each Fund are offered in two classes known as Class A Shares and Class
B Shares (individually and collectively referred to as "Shares" as the context
may require). This Statement of Additional Information relates to both classes
of the above-mentioned Shares. Deutsche Fund Management, Inc. ("DFM"), a
registered investment adviser and an indirect subsidiary of Deutsche Bank AG, a
major global financial institution, is the investment manager (the "Manager") of
each Portfolio. DWS International Portfolio Management GmbH is the investment
adviser (the "DWS Adviser") of each Portfolio except Top 50 US Portfolio.
Deutsche Morgan Grenfell Investment Management Inc. is the investment adviser of
the Top 50 US Portfolio (the "DMGIM Adviser" and together with the DWS Adviser
or severally as the context may require, the "Adviser"). This Statement of
Additional Information is not a prospectus and should be read in conjunction
with the relevant Fund's Prospectus dated April 30, 1998, a copy of which may be
obtained from the Corporation at the address noted below.
Federated Investors Tower
Pittsburgh, PA 15222-3779
The date of this Statement of Additional Information is April 30, 1998
Edgewood Services, Inc., Distributor
G02179-03 (4/98)
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Investment Objective and Policies 1
Equity Investments 1
Investment Companies 1
Participation Certificates 1
Short-Term Instruments 1
Zero Coupon Obligations 2
Options 2
Foreign Currency Exchange Transactions 3
Futures Contracts and Options
on Futures Contracts 3
Risk Management 5
The German Securities Markets 6
Equity Markets 6
Stock Indices 7
Primary Markets 8
Role of Banks in German Capital Markets 8
Japanese Equity Securities Markets 9
Investment Restrictions 13
Non-Fundamental Investment Restrictions 14
Directors, Trustees, and Officers 15
Directors of the Corporation and
Trustees of the Portfolio Trust 15
Officers of the Corporation 16
Compensation Table--
Directors of the Corporation 17
Compensation Table--
Trustees of the Portfolio Trust 17
Fund Ownership 18
Manager 19
Adviser 20
Administrator 21
Operations Agent 22
Administrative Agent 22
Distributor 23
Transfer Agent, Custodian, and Fund Accountant 24
Independent Accountants 24
Purchase of Shares 25
Conversion to Federal Funds 25
Redemption of Shares 25
Redemption in Kind 25
Elimination of the Contingent
Deferred Sales Charge 25
Exchange of Shares 26
Net Asset Value 26
Fixed Income Securities 26
Other Securities 26
Performance Data 27
Total Return Quotations 27
Yield 27
General 28
Information and Comparisons
Relating to the Funds, Secondary
Market Trading, Net Asset Size,
Performance and Tax Treatment 28
Economic and Market Information 30
Portfolio Transactions 30
Portfolio Turnover 31
Taxes 31
United States Taxation 31
Description of Shares 33
Additional Information 34
Appendix A 35
Funds and Corresponding Portfolios 35
Appendix B--Description of
Security Ratings 35
Standard & Poor's Corporate and
Municipal Bonds 35
Moody's Corporate and Municipal Bonds 35
Financial Statements 36
</TABLE>
Investment Objective and Policies
- --------------------------------------------------------------------------------
The following supplements the information contained in each Fund's Prospectus
concerning the investment objectives, policies and techniques of the Portfolios.
The descriptions are general and may not be applicable in certain countries in
which the Portfolios invest.
Equity Investments
As discussed in each Fund's Prospectus, each Portfolio may invest in the equity
securities of domestic and foreign issuers to the extent consistent with its
investment objectives and policies. Equity investments may or may not pay
dividends and may or may not carry voting rights. Common stock occupies the most
junior position in a company's capital structure. Preferred stock generally
carries preferential rights to dividends and amounts payable upon liquidation of
the issuer, but may have no voting rights. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time and to receive interest or dividends until the holder elects to convert.
The provisions of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible securities, the
holder's claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of common shareholders.
Investment Companies
Up to 5% of the total assets of each Portfolio except the Top 50 US Portfolio
may be invested in shares of investment companies, provided these shares are
offered to the public without limitation on the number of shares, the
shareholders have the right to redeem their shares, and have investment policies
consistent with those of the Portfolio. The Top 50 US Portfolio may invest up to
5% of its total assets in the securities of any one investment company and
invest in the aggregate up to 10% of its total assets in the securities of
investment companies as a group. However, the Top 50 US Portfolio intends that
less than 5% of the Portfolio's total assets will be invested in investment
company securities during its first year of operations. Each Portfolio may not
own more than 3% of the total outstanding voting stock of any other investment
company. As a shareholder of another investment company, a Portfolio would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees.
Subject to the foregoing limitations, shares of another securities investment
fund managed by the Manager or the Adviser or by another investment adviser
affiliated with the Manager or the Adviser through a substantial direct or
indirect interest may be purchased, subject to certain limitations, if the other
investment fund according to its investment policies is specialized in a
specific geographic area or economic sector. A Portfolio would not, however, pay
a sales charge when investing in an investment company managed by the Manager,
the Adviser or their affiliates. In addition, no management or advisory fees
would be paid by a Portfolio with respect to its assets which are invested in
investment companies managed by the Manager, the Adviser or their affiliates.
Participation Certificates
Certain companies have issued participation certificates which entitle the
holder to participate only in dividend distributions, generally at rates above
those declared on the issuers' common stock, but not to vote, nor usually to any
claim for assets in liquidation. Participation certificates trade like common
stock on their respective stock exchanges. Such securities may have higher
yields; however, they may be less liquid than common stock. The Adviser believes
that certain participation certificates have potential for long-term
appreciation, depending on their price relative to that of the issuer's equity
securities, if publicly traded, and other criteria.
Short-Term Instruments
Although it is intended that the assets of each Portfolio stay invested in the
securities described above and in each Fund's Prospectus to the extent practical
in light of each Portfolio's investment objective and long-term investment
perspective, assets of each Portfolio may be invested in bank deposits and money
market instruments maturing in less than 12 months to meet anticipated expenses
or for day-to-day operating purposes and when, in the Adviser's opinion, it is
advisable to adopt a temporary defensive position because of unusual and adverse
conditions affecting the equity or fixed income markets. In addition, when a
Portfolio experiences large cash inflows through additional investments by its
investors or the sale of portfolio securities, and desirable securities that are
consistent with its investment objective are unavailable in sufficient
quantities, assets may be held in short-term investments for a limited time
pending availability of such securities. Bank deposits and money market
instruments include credit balances and bank certificates of deposit, discounted
treasury notes and bills issued by the Federal Republic of Germany ("FRG"), the
states of the FRG, the European Union, other member states of the OECD or
quasi-government entities of any of the foregoing.
Zero Coupon Obligations
Each Portfolio may also invest in zero coupon obligations, such as zero coupon
bonds. Zero coupon obligations pay no current interest, and as a result their
prices tend to be more volatile than those of securities that offer regular
payments of interest. In order to pay cash distributions representing income on
zero coupon obligations, a Portfolio may have to sell other securities on
unfavorable terms, and these sales may generate taxable gains for investors in
the corresponding Fund.
Options
Each Portfolio may write call and put options and purchase call and put options
on securities. A Portfolio will write options on securities for the purpose of
increasing its return on such securities and/or to protect the values of its
portfolio.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs). A call buyer
typically attempts to participate in potential price increases of the instrument
underlying the option with risk limited to the cost of the option if security
prices fall. At the same time, the buyer can expect to suffer a loss if security
prices do not rise sufficiently to offset the cost of the option (limited to the
amount of the premium paid, plus related transaction costs). A Portfolio may
seek to terminate its position in a put option it writes before exercise by
purchasing an offsetting option in the market at its current price. If the
market is not liquid for a put option the Portfolio has written, however, the
Portfolio must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to post margin as
discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect to
suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline. The
characteristics of writing call options are similar to those of writing put
options, except that writing calls generally is a profitable strategy if prices
remain the same or fall. Through receipt of the option premium a call writer
offsets part of the effect of a price decline. At the same time, because a call
writer must be prepared to deliver the underlying instrument in return for the
strike price, even if its current value is greater, a call writer gives up some
ability to participate in security price increases.
Transactions in options, futures contracts, options on futures contracts and
forward contracts entered into for non-hedging purposes involve greater risk and
could result in losses which are not offset by gains on other portfolio assets.
All options purchased or sold by a Portfolio will be traded on a securities
exchange or, in the case of Top 50 US Portfolio, will be purchased or sold by
securities dealers (in the case of over-the-counter, or "OTC," options) that
meet creditworthiness standards approved by the Portfolio Trust's Board of
Trustees. In the case of OTC options, the Top 50 US Portfolio relies on the
dealer from which it purchased the option to perform if the option is exercised.
Thus, when the Portfolio purchases an OTC option, it relies on the dealer from
which it purchased the option to make or take delivery of the underlying
securities. Failure by the dealer to do so would result in the loss of the
premium paid by the Portfolio as well as loss of the expected benefit of the
transaction.
The staff of the Securities and Exchange Commission ("SEC") has taken the
position that, in general, purchased OTC options and the underlying securities
used to cover written OTC options are illiquid securities. However, the Top 50
US Portfolio may treat as liquid the underlying securities used to cover written
OTC options, provided it has arrangements with certain qualified dealers who
agree that such Portfolio may repurchase any option it writes for a maximum
price to be calculated by a predetermined formula. In these cases, the OTC
option itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
Foreign Currency Exchange Transactions
Each Portfolio (except the Top 50 US Portfolio) may enter into foreign currency
exchange transactions in an attempt to protect against changes in foreign
currency exchange rates between the trade and settlement dates of specific
securities transactions or anticipated securities transactions. Each Portfolio
may also enter into foreign currency transactions to hedge against a change in
foreign currency exchange rates that would affect the value of existing
investments denominated or principally traded in a foreign currency. Each
Portfolio other than the Provesta Portfolio and the Investa Portfolio may also,
in circumstances where the Adviser considers it appropriate, enter into foreign
currency exchange transactions for the purpose of hedging the value of such
Portfolios against currencies other than the U.S. dollar. To conduct the hedging
discussed above, a Portfolio would generally enter into a forward contract to
sell the foreign currency in which the investment is denominated in exchange for
U.S. dollars or other currency in which the Adviser desires to protect the value
of the Portfolio.
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is difficult, and the successful execution of a hedging strategy is
highly uncertain.
Futures Contracts and Options on Futures Contracts
Each Portfolio may purchase or sell futures contracts and purchase put and call
options, including put and call options on futures contracts. In addition, each
Portfolio may purchase put and call options on futures. Futures contracts
obligate the buyer to take and the seller to make delivery at a future date of a
specified quantity of a financial instrument or an amount of cash based on the
value of a securities index.
Futures contracts and options on futures contracts may be entered into on
foreign exchanges. Investors should recognize that transactions involving
foreign securities or foreign currencies, and transactions entered into in
foreign countries may involve considerations and risks not typically associated
with investing in U.S. markets.
Futures Contracts
When a Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date
and price or to make or receive a cash payment based on the value of a
securities index or a financial instrument. When a Portfolio sells a
futures contract, it agrees to sell a specified quantity of the underlying
instrument at a specified future date and price or to receive or make a
cash payment based on the value of a securities index or a financial
instrument. When a Portfolio purchases or sells a futures contract, the
value of the futures contract tends to increase and decrease in tandem with
the value of its underlying instrument or index. The price at which the
purchase and sale will take place is fixed when a Portfolio enters into the
contract. Futures can be held until their delivery dates or the positions
can be (and normally are) closed out, by entering into an opposing
contract, before then.
When a Portfolio purchases or sells a futures contract, it is required to
make an initial margin deposit. Although the amount may vary, initial
margin can be as low as 1% or less of the notional amount of the contract.
Additional margin may be required as the contract fluctuates in value.
Since the amount of margin is relatively small compared to the value of the
securities covered by a futures contract, the potential for gain or loss on
a futures contract is much greater than the amount of the Portfolio's
initial margin deposit.
Options on Futures
Put and call options on futures contracts may be purchased by each
Portfolio in order to protect against declines in values of portfolio
securities or against increases in the cost of securities to be acquired.
Unlike a futures contract, which requires parties to buy or sell the
underlying financial instrument or make a cash settlement payment based on
changes in the price of the financial instrument on an agreed date, an
option on a futures contract entitles its holder to decide on or before a
future date whether to enter into such a contract. If the holder decides
not to exercise its option, the holder may close out the option position by
entering into an offsetting transaction or may decide to let the option
expire and forfeit the premium thereon. The purchaser of an option on a
futures contract pays a premium for the option but makes no initial margin
payments or daily payments of cash in the nature of "variation" margin
payments to reflect the change in the value of the underlying contract as
does a purchaser or seller of a futures contract. The seller of an option
on a futures contract receives the premium paid by the purchaser and may be
required to pay initial margin. Amounts equal to the initial margin and any
additional collateral required on any options on futures contracts sold by
a Portfolio are paid by that Portfolio into a segregated account as
required by the 1940 Act and the SEC's interpretations thereunder.
Purchase of options on futures contracts may present less risk in hedging a
Portfolio than the purchase or sale of the underlying futures contracts
since the potential loss is limited to the amount of the premium plus
related transaction costs.
Combined Positions
Each Portfolio may purchase and write options in combination with each
other, or in combination with futures or forward contracts, to adjust the
risk and return characteristics of the overall position. For example, a
Portfolio may purchase a put option and write a call option on the same
underlying instrument, in order to construct a combined position whose risk
and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
Options on Securities Indices
Each Portfolio is also permitted to purchase call and put options on any
securities index based on securities in which the Portfolio may invest.
Options on securities indices are similar to options on securities, except
that the exercise of securities index options is settled by cash payment
and does not involve the actual purchase or sale of securities. In
addition, these options are designed to reflect price fluctuations in a
group of securities or segment of the securities market rather than price
fluctuations in a single security. A Portfolio, in purchasing index options
for hedging purposes, is subject to the risk that the value of its
portfolio securities may not change as much as that of an index because the
Portfolio's investments generally will not match the composition of an
index.
Warrants
Each Portfolio may purchase warrants which, like options on futures
contracts and options on securities indices, entitle the holder to purchase
or sell a futures contract or to a cash payment reflecting the price
fluctuation in an index of securities. A Portfolio may also purchase
warrants that entitle the holder to a cash payment reflecting the
fluctuation in the value of certain financial futures contracts. Warrants
on futures contracts and warrants on securities indices differ from the
equivalent options in that: (1) they are securities issued by a financial
institution/special purpose issuer rather than contracts entered into with
a futures exchange and (2) they are traded on a securities exchange rather
than on a futures exchange. The use of warrants will generally entail the
same risks that are associated with a Portfolio's positions in options on
futures and options on securities indices.
Other Limitations
The Commodity Exchange Act prohibits U.S. persons, such as a Portfolio,
from buying or selling certain foreign futures contracts or options on such
contracts. Accordingly, each Portfolio will not engage in foreign futures
or options transactions unless the contracts in question may lawfully be
purchased and sold by U.S. persons in accordance with applicable Commodity
Futures Trading Commission ("CFTC") regulations or CFTC staff advisories,
interpretations and no action letters. In addition, in order to assure that
a Portfolio will not be considered a "commodity pool" for purposes of CFTC
rules, the Portfolio will enter into transactions in futures contracts or
options on futures contracts only if (1) such transactions constitute bona
fide hedging transactions, as defined under CFTC rules or (2) no more than
5% of the Portfolio's net assets are committed as initial margin or
premiums to positions that do not constitute bona fide hedging
transactions.
Correlation of Price Changes
Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized options and futures
contracts available will not match a Portfolio's current or anticipated
investments exactly. Each Portfolio may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of a Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments match a
Portfolio's investments well. Options and futures contracts prices are
affected by such factors as current and anticipated short term interest
rates, changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect security
prices the same way. Imperfect correlation may also result from differing
levels of demand in the options and futures markets and the securities
markets, from structural differences in how options and futures and
securities are traded, or from imposition of daily price fluctuation limits
or trading halts. A Portfolio may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to
hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although
this may not be successful in all cases. If price changes in a Portfolio's
options or futures positions are poorly correlated with its other
investments, the positions may fail to produce anticipated gains or result
in losses that are not offset by gains in other investments.
Liquidity of Options and Futures Contracts
There is no assurance a liquid market will exist for any particular option
or futures contract at any particular time even if the contract is traded
on an exchange. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts and may halt trading
if a contract's price moves up or down more than the limit in a given day.
On volatile trading days when the price fluctuation limit is reached or a
trading halt is imposed, it may be impossible for a Portfolio to enter into
new positions or close out existing positions. If the market for a contract
is not liquid because of price fluctuation limits or otherwise, it could
prevent prompt liquidation of unfavorable positions, and could potentially
require a Portfolio to continue to hold a position until delivery or
expiration regardless of changes in its value. As a result, a Portfolio's
access to other assets held to cover its options or futures positions could
also be impaired.
Position Limits
Futures exchanges can limit the number of futures and options on futures
contracts that can be held or controlled by an entity. If an adequate
exemption cannot be obtained, a Portfolio or its Adviser may be required to
reduce the size of its futures and options positions or may not be able to
trade a certain futures or options contract in order to avoid exceeding
such limits.
Asset Coverage for Futures Contracts and Options Positions
Each Portfolio intends to comply with Section 4.5 of the regulations under
the Commodity Exchange Act, which limits the extent to which a Portfolio
can commit assets to initial margin deposits and option premiums. In
addition, each Portfolio will comply with guidelines established by the SEC
with respect to coverage of options and futures contracts by mutual funds,
and if the guidelines so require, will set aside appropriate liquid assets
in a segregated custodial account in the amount prescribed. Securities held
in a segregated account cannot be sold while the futures contract or option
is outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of a
Portfolio's assets could impede portfolio management or a Portfolio's
ability to meet redemption requests or other current obligations.
Risk Management
Each Portfolio may employ non-hedging risk management techniques. Examples of
such strategies include synthetically altering the duration of a portfolio or
the mix of securities in a portfolio. For example, if the Adviser wishes to
extend maturities in a fixed income portfolio in order to take advantage of an
anticipated decline in interest rates, but does not wish to purchase the
underlying long term securities, it might cause the Portfolio to purchase
futures contracts on long-term debt securities. Similarly, if the Adviser wishes
to decrease fixed income securities or purchase equities, it could cause a
Portfolio to sell futures contracts on debt securities and purchase futures
contracts on a stock index. Because these risk management techniques involve
leverage, they include, as do all leveraged transactions, the possibility of
losses as well as gains that are greater than if these techniques involved the
purchase and sale of the securities themselves rather than their synthetic
derivatives.
The German Securities Markets
- --------------------------------------------------------------------------------
Equity Markets
Equity securities trade on the country's eight regional stock exchanges
(Frankfurt, Dusseldorf, Munich, Hamburg, Berlin, Stuttgart, Hanover and Bremen),
of which Frankfurt accounted for approximately 78% of the total volume in 1997.
While trading in listed securities is not legally or otherwise confined to the
exchanges, they are believed to handle the largest part of trading volume in
equity transactions.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET CAPITALIZATION AND TRADING VOLUME
OF EQUITY SECURITIES ON GERMAN STOCK EXCHANGES(1)
(IN BILLIONS)
- ---------------------------------------------------------
Market Trading Volume for
Capitalization as the year ended
of December 31, 1997 (2) December 31, 1997 (2)
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
1992 $348.14 DM561.89 $ 876.8 DM1,415.2
1993 463.48 800.10 1,150.3 1,985.8
1994 499.25 773.88 1,302.9 2,017.9
1995 544.89 781.10 1,146.8 1,643.9
1996 635.95 988.77 1,487.6 2,312.9
1997 825.23 1,483.85 2,067.4 3,717.4
- ---------------------------------------------------------
</TABLE>
(1) Excluding stocks of foreign-domiciled companies and investment companies.
(2) U.S. dollar equivalents calculated at year-end exchange rates. The figures
for 1992 through 1994 include warrants.
Sources: Deutsche Borse AG and the Deutsche Bundes bank.
German stock exchanges offer three different market segments within which stocks
are traded:
(i) The official market (Amtlicher Handel) comprises trading in shares which
have been formally admitted to official listing by the admissions committee
of the stock exchange concerned, based upon disclosure in the listing
application or "prospectus."
(ii) The regulated, unlisted market (Geregelter Market) comprises trading in
shares not admitted to official listing. Companies admitted to this market
segment are exempt from publishing a full listing prospectus, but are
required to submit an offering memorandum. Admission is granted by a
special committee which is also responsible for the supervision of the
establishment of prices.
(iii) The unofficial unregulated telephone or over-the-counter market
(Freiverkehr) comprises trading in securities that have not followed any
special listing procedure. It includes trading in securities by telephone
or on the stock exchange premises, between banks or through floor brokers
prior to or after official trading hours.
For an official listing, the German stock exchanges and pertinent legislation
require public disclosure of all information about an issuer considered material
to an evaluation of the securities to be listed. Applications must further
provide the latest annual financial statements of the issuer with explanatory
notes, including disclosure of any liabilities not shown therein. They must also
furnish details of the issuer to be listed. Generally, DM 0.5 million par value
(i.e., 10,000 shares of DM 50 par value) is considered to be the minimum amount
suitable for full listing. Applications for admission to regulated unlisted
trading must contain essentially similar information as that required for full
listing, but in a condensed form that may be submitted as a memorandum. However,
the document, in lieu of being published, may be deposited with paying agents so
long as reference is made in one of the official stock exchange publications.
Markets in listed securities are generally of the auction type, but a
substantial amount of listed securities also changes hands in inter-bank dealer
markets both on and off the stock exchanges. Prices for active stocks, including
those of larger companies, are quoted continuously during stock exchange hours.
Less active listed and stocks admitted to trading in the regulated unlisted
market are quoted only once a day.
Options on both domestic and foreign stocks have been traded since 1970 although
trading activity is relatively low. There is also active trading in share
warrants, generally issued in conjunction with bonds.
As set forth below under "Role of Banks in German Capital Markets," German
banks, brokers and selected domestic investment trusts are regular members of
the stock exchanges. Banks may deal on a net basis for their own account, as
well as for accounts of domestic and foreign institutional customers during or
after regular stock exchange hours.
Stock Indices
Two principal stock indices in Germany are the DAX Index (Deutscher Aktienindex;
i.e., German Stock Index) and the CDAX German Composite Index (Composite
Deutscher Aktienindex). The DAX Index is composed of the 30 most actively traded
German blue-chip stocks. It represents over 71% of the total equity capital of
German exchange-listed companies. Trading in these shares accounts for
approximately 73% of the stock volume traded on the German exchanges. The CDAX
German Composite Index comprises all German stocks listed in the official market
at the Frankfurt Stock Exchange.
Set forth in the table below is information concerning the total return of the
DAX Index and CDAX Index for each of the periods indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURN(1)
- --------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DAX (2.09)% 46.71% (7.06)% 6.99% 28.17% 47.11%
CDAX (6.39)% 44.56% (5.83)% 4.75% 22.14% 40.83%
Dollar-adjusted DAX (8.33)% 36.85% 4.12% 15.60% 18.17% 27.63%
Dollar-adjusted CDAX (12.36)% 34.85% 5.50% 13.17% 12.61% 22.18%
- --------------------------------------------------------------------------------
</TABLE>
(1) Based on U.S. dollar returns.
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 1997 represented 28.7% of total trading volume on the German
stock exchanges: Deutsche Bank AG with DM 254.7 billion, Daimler Benz AG with DM
233.7 billion, Siemens AG with DM 224.7 billion,
Volkswagen AG with DM 192.3 billion, and Bayer AG with DM 145.1 billion.
The actual float available for public trading is significantly smaller than the
aggregate market value cited above because of the large extent of long-term
holdings by non-financial corporations, family groups and banks. However, the
number of publicly traded shares has been increasing in recent years due to a
reduction in such holdings on the part of certain insurance companies and public
authorities. In addition, the continuing public offerings of equity securities
previously controlled by the federal government have contributed to the growing
size of the float.
Domestic institutional ownership of German equities, while large relative to
that by individuals, is less than that in certain other industrial countries.
The German Government is encouraging the expansion of private participation in
the equity markets, and has contributed to this process both directly, through
public sale of government-owned enterprises, as well as indirectly through
fiscal measures.
Set forth in the table below is information concerning the industry composition
of the DAX Index and CDAX Index.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
INDUSTRY COMPOSITION OF DAX(1) AND CDAX(2)
INDEX AS OF DECEMBER 31, 1997
- -------------------------------------------------------------------
DAX CDAX
- -------------------------------------------------------------------
<S> <C> <C>
Automobile 12.21% 10.84%
Construction -- 3.05%
Chemicals 15.35% 19.01%
Mergers -- 0.85%
Electronics Industry 11.49% 5.69%
Brewery -- 0.72%
Hypo Banks -- 1.02%
Banks 18.55% --
Credit Banks -- 11.10%
Traffic 1.25% 0.82%
Mechanical Engineering 4.82% 7.42%
Paper -- 0.86%
Utilities 16.45% 18.18%
Steel and Raw Materials 2.08% 2.17%
Textile -- 1.35%
Insurance 15.85% 11.57%
Consumer Goods 1.96% 5.35%
- -------------------------------------------------------------------
Total 100.00% 100.00%
- -------------------------------------------------------------------
</TABLE>
(1) The DAX Index is comprised of 30 stocks representing approximately 75% of
the market capitalization of the Frankfurt stock exchange.
(2) The CDAX Index is comprised of 355 stocks (subject to adjustments).
Primary Markets
The amount of funds raised in equity financings in 1997 decreased by DM 19,846
million to DM 4,961 million while the number of financings increased by 22 to
36. The total value of primary offerings for each of the previous five years of
listed equity issues is shown in the table below.
- ------------------------------------------------
PRIMARY OFFERINGS OF LISTED EQUITY SECURITIES
BY DOMESTIC ISSUERS
(MILLIONS OF DM)
- ------------------------------------------------
1992 1993 1994 1995 1996 1997
- ------------------------------------------------
Value 804 833 1,246 6,495 24,807 4,961
- ------------------------------------------------
Source: Deutsche Borse AG.
Role of Banks in German Capital Markets
As is the case in other continental European developed countries, German
commercial and banking laws permit commercial banks to act, either directly or
indirectly, as investment bankers/underwriters, managers of mutual and other
investment funds and investment advisers, as well as securities broker/dealers.
Many German banks, including Deutsche Bank AG ("Deutsche Bank"), are members of
stock exchanges in their respective countries. Moreover, they may, directly or
indirectly, also provide other financial services such as life insurance,
mortgage lending and installment financing. Lastly, they may, and frequently do,
maintain long-term equity participations in industrial, commercial or financial
enterprises, including enterprises whose voting and other equity securities may
be publicly traded and/or listed on national securities exchanges. Recent
legislation requires notification of the newly established Securities Trading
Supervisory Office and publication if certain thresholds of participating in the
voting capital of a stock exchange listed corporation are passed.
Deutsche Bank, the parent of the Manager and the Investment Adviser, holds
significant participation in five listed German companies. The term
"significant" denotes direct ownership of over 25% of the voting equity which,
under German law, provides the holder with veto power in policy decisions, such
as a change of business objectives or major acquisitions. Deutsche Bank owns
equity interests ranging from 25% to 50% in holding companies that own
participations of 25% or more in an additional five listed German companies,
most of which are publicly owned. In addition, Deutsche Bank may maintain
trading positions in the securities of these and other (domestic and foreign)
companies, and may make trading markets in some of them, subject to limitations
imposed by applicable law, including the limitations of the German Stock
Exchange Law (Borsengesetz) of 1896, as amended. Deutsche Bank directors or
officers may, by virtue of such ownership or otherwise, be elected to the
Supervisory Boards of these and other companies. Deutsche Bank and its
affiliates may also have commercial lending relationships with companies whose
securities a Portfolio may acquire. In their capacity as underwriters,
German banks originate and manage new issues of domestic and international fixed
income and equity securities both in their respective domestic primary market
and in the Euromarket. Deutsche Bank frequently acts as lead manager for
domestic underwritten offerings of both debt and equity securities. Under an SEC
rule, the Portfolios may purchase securities in offerings in which Deutsche Bank
or one of its affiliates is the principal underwriter, subject to certain
conditions. Directly and through its various wholly-owned affiliates abroad,
Deutsche Bank is a major factor in the Eurobond market. Although the Portfolio
will not purchase securities from or sell securities to Deutsche Bank, the
trading activities of Deutsche Bank as well as the investment positions and
underwriting activities in such securities could have either an adverse or
beneficial effect on the price of those securities already held in the Portfolio
or contemplated for purchase and, depending on the size of Deutsche Bank's
position, may or may not affect the availability of the securities for
investment of the Portfolio.
Japanese Equity Securities Markets
- --------------------------------------------------------------------------------
Listed securities in Japan trade on three Main Japanese Exchanges (the Nagoya
Stock Exchange, the Osaka Securities Exchange and the Tokyo Stock Exchange (the
"TSE")) and five regional stock exchanges (the Fukuoka Stock Exchange, the
Hiroshima Stock Exchange, the Kyoto Stock Exchange, the Niigata Stock Exchange
and the Sapporo Stock Exchange). The TSE is the largest and most prestigious of
the exchanges and is widely regarded as the central marketplace for all of
Japan.
There are two widely followed price indices in Japan for listed securities. The
Nikkei Stock Average ("NSA") is the arithmetic average of 225 selected stocks
computed by a private corporation. The Tokyo Stock Price Index ("TOPIX"),
published by the TSE, is the composite index of all common stock listed on the
First Section of the TSE. TOPIX reflects the change in the aggregate market
value of the common stocks as compared to the aggregate market value of those
stocks as of the close on January 4, 1968. The following table sets forth
the year-end NSA and TOPIX for 1987 through 1997 and yen and dollar-adjusted
total return information for those years.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
NSA TOPIX
- -------------------------------------------------------------------------
Total Return(1) Total Return(1)
- -------------------------------------------------------------------------
Dollar Dollar
Index (Yen) Adjusted Index (Yen) Adjusted
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1987 21,564.00 15.31% 50.54% 1,725.83 10.89% 44.77%
1988 30,159.00 39.86% 35.61% 2,357.03 36.57% 32.42%
1989 38,915.87 29.04% 12.21% 2,881.37 22.25% 6.31%
1990 23,848.71 -38.72% -35.08% 1,733.83 -39.83% -36.26%
1991 22,983.77 -3.63% 4.75% 1,714.68 -1.10% 7.49%
1992 16,924.95 -26.36% -26.33% 1,307.66 -23.74% -23.71%
1993 17,417.24 2.91% 15.02% 1,439.31 10.07% 23.03%
1994 19,723.06 13.24% 27.00% 1,559.09 8.32% 21.48%
1995 19,868.15 0.74% -2.85% 1,577.70 1.19% -2.41%
1996 19,361.35 -2.55% -13.06% 1,470.94 -6.77% -16.83%
1997 15,258.74 -21.19% -29.65% 1,175.03 -20.12% -28.69%
- -------------------------------------------------------------------------
</TABLE>
(1) Total return is the percent change in the index from the start of the year
to the end.
Sources: Tokyo Stock Exchange, Annual Securities Statistics (1998); Monthly
Statistics Report (Dec. 1987, 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995,
1996, 1997).
The Japanese stock and real estate markets of the late 1980s have been dubbed
"bubble" markets because they were characterized by dramatic increases in the
volume of trading and transactions as well as in prices of stock and land. Such
increases were driven by investors' expectations that stock and land prices
would rise even further for the foreseeable future, thereby justifying (in their
minds) their over-priced investments in Japanese stock and real estate. Many of
such investments were financed with secured loans from Japan's banks and
so-called "non-bank banks" (i.e., companies that are not licensed by the
Minister of Finance to engage in the business of commercial banking but that are
primarily engaged in the business of commercial lending).
The collapse of the "bubble" stock market in 1990 had a material adverse impact
on the financial situation of various participants therein. Such collapse also
led to various problems involving irregular practices in the securities
business, such as compensation to favored customers by securities companies for
trading and other losses. The decline in stock prices has raised the cost of
capital for industry and has reduced the value of stock holdings by banks and
corporations. These effects have, in turn, contributed to the recent weakness in
Japan's economy and could continue to have an adverse impact in the future.
The following table sets forth the aggregate trading volume and the value of
Japanese stocks on the eight Japanese stock exchanges for the years 1989 through
1997. Trading on the TSE represented over 72% of trading volume in each year.
<TABLE>
<CAPTION>
- -----------------------------------------
VOLUME VALUE
YEAR (MILLIONS OF SHARES) ((Yen) BILS.)
- -----------------------------------------
<S> <C> <C>
1989 256,296 386,395
1990 145,837 231,837
1991 107,844 134,160
1992 82,563 80,456
1993 101,172 106,123
1994 105,936 114,622
1995 120,148 115,840
1996 126,496 136,170
1997 151,445 16,038
- -----------------------------------------
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1998.
The Main Japanese Exchanges divide listed companies into First and Second
Sections. Generally, larger, established companies are assigned to the First
Section. Such companies meet more stringent listing criteria relating to the
size and business condition of the issuing company, the liquidity of its
securities and other factors pertinent to investor protection. At the end of
1997, 1,327 Japanese companies were listed on the First Section of the TSE.
Newly listed and smaller companies are assigned to the Second Section. At the
end of 1997, 478 Japanese companies were listed on the Second Section of the
TSE. In an effort to increase the number of companies listed on the Second
Section, the Second Section listing requirements prescribed by each of the Main
Japanese Exchanges were lowered in 1996.
The 20 leading Japanese companies on the TSE, by market value, represented 35.4%
of the total market value of the TSE at year-end 1997. In 1997, three industrial
groups accounted for approximately 41% of the total market value of the TSE:
banks, 15.4%; electric appliances, 14.8%; and transportation equipment, 10.7%.
The following table sets forth the number of companies listed on the TSE and
market value by industrial group for year-end 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Number of Market Values
Companies ((Yen) bils.)
- --------------------------------------------------------------------------
<S> <C> <C>
Fishery, Agriculture & Forestry 7 247
Mining 9 312
Construction 147 6,127
Foods 92 8,171
Textiles & Apparels 64 3,385
Pulp & Paper 22 1,668
Chemicals 131 12,898
Pharmaceutical 39 10,679
Oil & Coal Products 13 1,754
Rubber Products 15 2,894
Glass & Ceramics Products 40 2,811
Iron & Steel 51 4,444
Nonferrous Metals 34 3,847
Metal Products 48 1,707
Machinery 150 8,835
Electric Appliances 183 41,818
Transportation Equipment 88 30,331
Precision Instruments 28 2,294
Other Products 51 7,727
Electric Power & Gas 17 12,653
Land Transportation 38 13,071
Marine Transportation 21 894
Air Transportation 5 1,413
Warehousing & Harbor
Transportation Services 24 637
Communication 4 7,735
Wholesale Trade 124 8,140
Retail Trade 93 14,305
Banks 103 43,435
Securities 25 5,181
Insurance 14 5,185
Other Financing Businesses 23 5,380
Real Estate 26 3,802
Services 76 8,096
- --------------------------------------------------------------------------
Total 1,805 281,876
- --------------------------------------------------------------------------
Manufacturing 1,049 145,263
Non-Manufacturing 756 136,613
- --------------------------------------------------------------------------
Total 1,805 281,876
- --------------------------------------------------------------------------
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1998.
The amount of funds raised in equity financings by all the companies listed on
the TSE in 1997 decreased by 595 billion yen to 938 billion yen while the number
of financings decreased by 111 to 142. The following table sets forth the number
of equity financings by companies listed on the TSE and the amount raised for
each of 1992 through 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
RIGHTS PUBLIC PRIVATE EXERCISE
OFFERINGS OFFERINGS PLACEMENTS OF WARRANTS TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
Number Amount Number Amount Number Amount Number Amount Amount
of Raised of Raised of Raised of Raised Raised
Financings ((Yen)bils.) Financings ((Yen) bils.) Financings ((Yen) bils.) Financings ((Yen) bils.) ((Yen) bils.)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 20 111 3 4 22 102 127 203 419
1993 9 48 4 7 14 150 184 617 822
1994 2 10 18 237 8 239 180 451 935
1995 12 96 8 33 19 160 118 299 588
1996 9 337 36 305 20 218 187 673 1,533
1997 9 73 26 128 19 369 88 368 938
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1998.
Investment Restrictions
- --------------------------------------------------------------------------------
The investment restrictions of each Fund and its corresponding Portfolio are
identical, unless otherwise specified. Accordingly, references below to a Fund
also include its corresponding Portfolio unless the context requires otherwise;
similarly, references to a Portfolio also include its corresponding Fund unless
the context requires otherwise.
The investment restrictions below have been adopted by the Corporation with
respect to each Fund as indicated and by the Portfolio Trust with respect to
each Portfolio as indicated. Except where otherwise noted, these investment
restrictions are "fundamental" policies which, under the 1940 Act, may not be
changed without the vote of a "majority of the outstanding voting securities"
(as defined in the 1940 Act) of a Fund or a Portfolio, as the case may be. The
percentage limitations contained in the restrictions below apply at the time of
the purchase of securities except as otherwise noted. Whenever a Fund is
requested to vote on a change in the fundamental investment restrictions of its
corresponding Portfolio, the Corporation will hold a meeting of Fund
shareholders and will cast its votes as instructed by such Fund's shareholders.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC staff
interpretations thereof are amended or modified and except that the Corporation
may invest all of each Fund's assets in its corresponding Portfolio, each of the
Funds and its corresponding Portfolio may not:
1. Purchase any security if, as a result, 25% or more of its total assets would
be invested in securities of issuers in any single industry. This limitation
shall not apply to securities issued or guaranteed as to principal or
interest by the U.S. Government or instrumentalities.
2. Issue senior securities. For purposes of this restriction, borrowing money in
accordance with paragraph 3 below, making loans in accordance with paragraph
7 below, the issuance of shares in multiple classes or series, the purchase
or sale of options, futures contracts, forward commitments, swaps and
transactions in repurchase agreements are not deemed to be senior securities.
3. Borrow money, except in amounts not to exceed one-third of the Fund's total
assets (including the amount borrowed) (i) from banks for temporary or
short-term purposes or for the clearance of transactions, (ii) in connection
with the redemption of interests in the Portfolio or Fund shares or to
finance failed settlements of portfolio trades without immediately
liquidating portfolio securities or other assets, (iii) in order to fulfill
commitments or plans to purchase additional securities pending the
anticipated sale of other portfolio securities or assets and (iv) pursuant to
reverse repurchase agreements entered into by the Portfolio.
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may be
deemed to be an underwriter under the Securities Act of 1933, as amended (the
"1933 Act").
5. Purchase or sell real estate except that a Portfolio may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that
invest in real estate or interests therein, (iii) invest in securities that
are secured by real estate or interests therein, (iv) purchase and sell
mortgage-related securities and (v) hold and sell real estate acquired by the
Portfolio as a result of the ownership of securities.
6. Purchase or sell commodities or commodity contracts, except the Portfolio may
purchase and sell financial futures contracts, options on financial futures
contracts and warrants and may enter into swap and forward commitment
transactions.
7. Make loans, except that the Portfolio may (1) lend portfolio securities with
a value not exceeding one-third of the Portfolio's total assets, (2) enter
into repurchase agreements, and (3) purchase all or a portion of an issue of
debt securities (including privately issued debt securities), bank loan
participation interests, bank certificates of deposit, bankers' acceptances,
debentures or other securities, whether or not the purchase is made upon the
original issuance of the securities.
Non-Fundamental Investment Restrictions
The investment restrictions described below are non-fundamental policies of the
Funds and their corresponding Portfolios and may be changed by their respective
Directors or Trustees. These non-fundamental investment policies require that
each Fund and its corresponding Portfolio may not (except that the Corporation
may invest all of each Fund's assets in its corresponding Portfolio):
(i) Acquire securities of other investment companies, except as permitted by the
1940 Act or any rule, order or interpretation thereunder, or in connection
with a merger, consolidation, reorganization, acquisition of assets or an
offer of exchange, provided that Provesta Portfolio and Investa Portfolio
shall each be limited to 5% in the amount of its total assets that may be
invested in the aggregate in securities of investment companies as a group.
Currently the 1940 Act prohibits a Portfolio from acquiring securities of
other investment companies if as a result (i) more than 5% of the value of a
Portfolio's total assets will be invested in the securities of any one
investment company, (ii) more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a
group, or (iii) more than 3% of the outstanding voting stock of any one
investment company will be owned by a Portfolio;
(ii) Acquire any illiquid investments, such as repurchase agreements with more
than seven days to maturity, if as a result thereof, more than 15% of the
market value of the Fund's net assets would be in investments that are
illiquid;
(iii) Invest more than 10% of its net assets in unlisted securities and Notes
(as defined in the Fund's prospectus);
(iv) Sell any security short, except to the extent permitted by the 1940 Act.
Transactions in futures contracts and options shall not constitute selling
securities short; or
(v) Purchase securities on margin, but a Portfolio may obtain such short term
credits as may be necessary for the clearance of transactions.
The DWS Funds are subject to regulation under the German Investment Companies
Act. Therefore, in addition to the investment policies discussed herein and in
the Prospectus, each Fund, except Top 50 US and its corresponding Portfolio, has
adopted additional non-fundamental investment policies. These non-fundamental
investment policies require that each such Fund and its corresponding Portfolio
may not (except that the Corporation may invest all of each Fund's assets in its
corresponding Portfolio):
(i) Invest more than 10% of its net assets in the securities of any one issuer
or invest more than 40% of its net assets in the aggregate in the securities
of those issuers in which the Portfolio has invested in excess of 5% but not
more than 10% of its net assets. For purposes of this restriction, mortgage
bonds and municipal bonds as well as bonds and Notes issued by the FRG, the
states of the FRG, a member state of the European Union ("EU"), a state
party to the Convention on the European Economic Area ("CEEA"), a member
state of the Organization for Economic Cooperation and Development ("OECD")
or the EU shall be valued at half of their value. Bonds of credit
institutions situated in a member state of the EU or state party to the CEEA
shall be valued at half their value provided that the credit institutions
are by law subject to a special public supervision to protect the holders of
such bonds and provided the funds raised through the issue of such bonds are
invested in accordance with the legal provisions in assets, which provide
sufficient coverage for the ensuing liabilities throughout the entire life
of the bonds and which in case of deficiency of the issuer are earmarked for
prior redemption of principal and payment of interest. Securities and Notes
issued by companies in the same affiliated group shall be considered
securities of the same issuer (borrower);
(ii) Purchase bonds of the same issuer to the extent that their total value
exceeds 10% of the total value of the bonds outstanding of the same issuer.
This restriction does not apply to bonds issued by a national government, a
local authority of a member state of the EU, a state party to the CEEA or
by the EU, or if one of these bodies guarantees the payment of interest or
the repayment of principal. For purchases, the above limit need not be
complied with if the total value of the outstanding bonds of the same
issuer cannot be determined;
(iii) Purchase non-voting shares of the same issuer to the extent that the
total value exceeds 10% of the total value of non-voting shares of the
issuer; and
(iv) Borrow money, except in amounts not to exceed 10% of the Fund's total
assets (including the amount borrowed).
The European Bond Fund is subject to an additional non-fundamental investment
restriction: no more than 10% of the value of its total assets will be invested
in equity securities (including warrants).
All Funds
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or
total assets, in the securities rating of the investment, or any other
later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Adviser may classify issuers by industry based on
classifications used by Micropal, a leading company offering a
comprehensive and accurate performance measurement service specializing in
collective investment vehicles. Micropal monitors all the world's major
fund markets and has a range of clients from financial institutions to
individual investors. In the absence of such classification or if the
Adviser determines in good faith based on its own information that the
economic characteristics affecting a particular issuer make it more
appropriately considered to be engaged in a different industry, the Adviser
may classify an issuer accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to
financing the activities of their parents.
Directors, Trustees, and Officers
- --------------------------------------------------------------------------------
The Directors of the Corporation, Trustees of the Portfolio Trust and executive
officers of the Corporation, and principal occupations during the past five
years (although their titles may have varied during the period) and business
addresses are:
Directors of the Corporation and Trustees of the Portfolio Trust
- --------------------------------------------------------------------------------
Edward C. Schmults
Member of the Board of Directors of Green Point Financial Corp. Chairman of the
Board of Trustees of The Edna McConnell Clark Foundation. Director of The
Germany Fund, Inc. and The Central European Equity Fund, Inc. Senior Vice
President - External Affairs and General Counsel of GTE Corporation (prior to
1994). Mr. Schmults' address is Rural Route One, Box 788, Cuttingsville, VT
05738.
- --------------------------------------------------------------------------------
Robert H. Wadsworth
President of The Wadsworth Group, First Fund Distributors, Inc. and Guinness
Flight Investment Funds, Inc. Director of The Germany Fund, Inc., The New
Germany Fund, Inc. and The Central European Equity Fund, Inc. Vice President of
Professionally Managed Portfolios and Advisors Series Trust. Mr. Wadsworth's
address is Investment Company Administration Corp., 479 West 22nd Street, New
York, NY 10011.
- --------------------------------------------------------------------------------
Werner Walbroel
President and Chief Executive of the German American Chamber of Commerce, Inc.
Member of the United States German Youth Exchange Council. Director of TUV
Rheinland of North America, Inc. President and Director of German American
Partnership Program. Director of The Germany Fund, Inc., DB New World Fund,
Limited and LDC, and The Central European Equity Fund, Inc. Mr Walbroel's
address is German American Chamber of Commerce, Inc., 40 West 57th Street, New
York, NY 10019.
- --------------------------------------------------------------------------------
G. Richard Stamberger*+
Managing Director of Deutsche Morgan Grenfell Inc. President, Deutsche Morgan
Grenfell Investment Management Inc. Director of The Germany Fund, Inc. and The
Central European Equity Fund, Inc. Managing Director of C.J. Lawrence, Inc.
(prior to 1993). Mr Stamberger's address is Deutsche Morgan Grenfell Investment
Management Inc., 31 West 52nd Street, New York, NY 10019.
- --------------------------------------------------------------------------------
Christian Strenger*+
Managing Director of DWS Deutsche Gesellschaft fuer Wertpapiersparen mbH (since
1991). Director of The Germany Fund, Inc., The New Germany Fund, Inc. and The
Central European Equity Fund, Inc. Managing Director of Deutsche Bank Securities
Corp. (prior to 1991). Mr. Strenger's address is DWS Deutsche Gesellschaft fuer
Wertpapiersparen mbH, Gruneburgweg 113-115, 60323 Frankfurt am Main, Germany.
- --------------------------------------------------------------------------------
Officers of the Corporation
- --------------------------------------------------------------------------------
Brian A. Lee+
President. President and Managing Director of DFM (since January 1997). Director
of Deutsche Bank Trust Company (since 1994). President and Chief Operating
Officer of Deutsche Bank Trust Company (1994-1997). Director of Deutsche Bank
Securities Corp. (1993-1994). Director of Value Line Securities, Inc. (1992-
1993). National Director and Head of Retail Sales and Service Division, The
Dreyfus Corporation (prior to 1992). Director, Boggy Creek Hole in the Wall Gang
Camp for Children. Trustee, Valley Hospital. Director, Capital Sources Board,
State of New Jersey.
- --------------------------------------------------------------------------------
Joseph Cheung
Treasurer. Vice President (since 1996), Assistant Vice President (1994-1996) and
Associate (1991-1994) of Deutsche Morgan Grenfell Inc. Treasurer of the Country
Baskets SM Index Fund, Inc. (1996-1997). Assistant Secretary and Assistant
Treasurer of The Germany Fund, Inc., The Central European Equity Fund, Inc. and
the New Germany Fund, Inc. (since 1993).
- --------------------------------------------------------------------------------
Robert R. Gambee
Secretary. Director of Deutsche Morgan Grenfell, Inc. (since 1992). First Vice
President of Deutsche Morgan Grenfell, Inc. (1987-1991). Treasurer and Secretary
of The Germany Fund, Inc., The Central European Equity Fund, Inc., and the New
Germany Fund, Inc.
- --------------------------------------------------------------------------------
Laura Weber
Assistant Secretary and Assistant Treasurer. Associate of Deutsche Morgan
Grenfell Inc. (since June 1997). Manager of Raymond James Financial (1996-1997).
Portfolio Accountant of Oppenheimer Capital (1995-1996). Supervisor (1994-1995)
and Mutual Fund Accountant (1993-1994) of Alliance Capital Management.
- --------------------------------------------------------------------------------
* Is an "interested person" of the Corporation or the Portfolio Trust as that
term is defined in the 1940 act.
+ Mr. Lee, Mr. Strenger and Mr. Stamberger own less than 1% of the shares of
Deutsche Bank AG, of which the Manager and Adviser are indirect subsidiaries.
The address of each officer of the Corporation is 31 West 52nd Street, New York,
NY 10019.
Officers of the Portfolio Trust
- --------------------------------------------------------------------------------
Holger Naumann
Treasurer. Director of DFM (since January 1997). Head of Participations at
DWS-DGW since December 1995). Group Strategy Department at Deutsche Bank AG
(prior to December 1995).
- --------------------------------------------------------------------------------
Compensation Table--Directors of the Corporation
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGREGATE PENSION OR ESTIMATED TOTAL
COMPENSATION RETIREMENT BENEFITS ESTIMATED ANNUAL COMPENSATION
FROM THE ACCRUED AS PART BENEFITS UPON FROM THE CORPORATION
CORPORATION OF FUND EXPENSES RETIREMENT AND FUND COMPLEX*+
<S> <C> <C> <C> <C>
Edward C. Schmults,
Director $7,000 None None $44,750
Robert H. Wadsworth,
Director $7,000 None None $62,000
Werner Walbroel,
Director $7,000 None None $46,250
G. Richard Stamberger,
Director None None None None
Christian Strenger,
Director None None None None
</TABLE>
* The Fund Complex consists of the Corporation, the Portfolio Trust, The New
Germany Fund, Inc., The Central European Equity Fund, Inc. and The Germany
Fund, Inc.
+ Information is furnished for the period from May 22, 1997, organization date
of the Corporation, to August 31, 1998.
Compensation Table--Trustees of the Portfolio Trust
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGREGATE PENSION OR ESTIMATED TOTAL
COMPENSATION RETIREMENT BENEFITS ESTIMATED ANNUAL COMPENSATION FROM
FROM THE ACCRUED AS PART BENEFITS UPON THE PORTFOLIO TRUST
PORTFOLIO TRUST OF FUND EXPENSES RETIREMENT AND FUND COMPLEX*+
<S> <C> <C> <C> <C>
Edward C. Schmults,
Trustee 7,000 None None $44,750
Robert H. Wadsworth,
Trustee 7,000 None None $62,000
Werner Walbroel,
Trustee 7,000 None None $46,250
G. Richard Stamberger,
Trustee None None None None
Christian Strenger,
Trustee None None None None
</TABLE>
* The Fund Complex consists of the Portfolio Trust, the Corporation, The New
Germany Fund, Inc., The Central European Equity Fund, Inc. and The Germany
Fund, Inc.
+ Information is furnished for the period from May 22, 1997, organization date
of the Portfolio Trust, to August 31, 1998.
The non-interested Directors of the Corporation receive a base annual fee of
$5,000 and $500 per meeting attended, plus expenses, which are paid jointly by
all series of the Corporation and allocated among the series based upon their
respective net assets.
The non-interested Trustees of the Portfolio Trust receive a base annual fee of
$5,000 and $500 per meeting attended, plus expenses, which are paid jointly by
all series of the Portfolio Trust and allocated among the series based upon
their respective net assets.
Neither the Corporation nor the Portfolio Trust requires employees, and none of
the Corporation's officers devotes full time to the affairs of the Corporation
or receive any compensation from a Fund or a Portfolio.
Fund Ownership
As of March 20, 1998, the Directors of the Corporation, Trustees of the
Portfolio Trust and Officers of the Corporation and the Portfolio Trust as a
group owned approximately 205 (5.53%) Class A shares of the Top 50 World Fund,
approximately 307 (20.34%) Class A shares of the Top 50 Europe Fund, no
outstanding Shares of the Top 50 Asia Fund, no outstanding Shares of the Top 50
US Fund, approximately 208 (3.86%) Class A shares of the European Mid-Cap Fund,
approximately 301 (17.94%) Class A shares of the German Equity Fund, no
outstanding Shares of the Japanese Equity Fund, Global Bond Fund, and the
European Bond Fund.
As of March 20, 1998, Directors of the Corporation, Trustees of the Portfolio
Trust and Officers of the Corporation and the Portfolio Trust as a group owned
none of the beneficial interests in any of the Portfolio Trust. As of the same
date, no person owned 5% or more of the voting stock of any Portfolio except
that the Corporation owned 100% of the outstanding beneficial interests in each
Portfolio.
As of March 20, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A shares of the Top 50 World Fund: Federated
Administrative Services, Pittsburgh, PA, owned approximately 888 (23.98%) Class
A shares; Scott I. Kaplan, New York, NY, owned approximately 831 (22.42%) Class
A shares; Ronald G. Lehman, New York, NY, owned approximately 338 (9.14%) Class
A shares; Giuseppi Auricchio, New York, NY, owned approximately 296 (8.00%)
Class A shares; Brian A. and Pamela M. Lee, Franklin Lakes, NJ, owned
approximately 205 (5.53%) Class A shares; Juergen Wittig, Brooklyn, NY, owned
approximately 200 (5.40%) Class A shares; Daniel C. and Margaret Sblendorio,
Middletown, NJ, owned approximately 196 (5.31%) Class A shares; Stuart M.
Rossmiller, Montclair, NJ, owned approximately 186 (5.04%) Class A shares; and
Thomas J. Mollica, Manalapan, NJ, owned approximately 186 (5.04%) Class A
shares. As of the same date no shareholders of record owned 5% or more of the
outstanding Class B shares of the Top 50 World Fund.
As of March 20, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A shares of the Top 50 Europe Fund: Federated
Administrative Services, Pittsburgh, PA, owned approximately 888 (58.73%) Class
A shares; Brian A. and Pamela M. Lee, Franklin Lakes, NJ, owned approximately
307 (20.34%) Class A shares; and Daniel C. and Margaret Sblendorio, Middletown,
NJ, owned approximately 196 (13.01%) Class A shares. As of the same date, no
shareholders of record owned 5% or more of the outstanding Class B shares of the
Top 50 Europe Fund.
As of March 20, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A shares of the Top 50 Asia Fund: Federated Administrative
Services, Pittsburgh, PA, owned approximately 888 (48.51%) Class A shares;
Robert D. Mancuso, Medfield, MA, owned approximately 327 (17.85%) Class A
shares; Carl DiFrancesco, Livingston, NJ, owned approximately 276 (15.10%) Class
A shares; and Daniel C. and Margaret Sblendorio, Middletown, NJ, owned
approximately 224 (12.23%) Class A shares. As of the same date, no shareholders
of record owned 5% or more of the outstanding Class B shares of the Top 50 Asia
Fund.
As of March 20, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A shares of the Top 50 US Fund: Deutsche Morgan Grenfell,
Inc. (as record holder for its clients), New York, NY, owned approximately
85,288 (76.70%) Class A shares; and Miter & Co., Milwaukee, WI, owned
approximately 17,618 (15.84%) Class A shares. As of the same date, the following
shareholder of record owned 5% or more of the outstanding Class B shares of the
Top 50 US Fund: Deutsche Morgan Grenfell, Inc. (as record holder for its
client), New York, NY, owned 4,000 (100%) Class B shares.
As of March 20, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A shares of the European Mid-Cap Fund: Guiseppi Auricchio,
New York, NY, owned approximately 1,654 (30.65%) Class A shares; Robert J. and
Diane Pastor, Colts Neck, NJ, owned approximately 1,507 (27.92%) Class A shares;
Federated Administrative Services, Pittsburgh, PA, owned approximately 888
(16.47%) Class A shares; and Clair J. Zak, New York, NY, owned approximately 406
(7.54%) Class A shares. As of the same date, no shareholders of record owned 5%
or more of the outstanding Class B shares of the European Mid-Cap Fund.
As of March 20, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A shares of the German Equity Fund: Federated
Administrative Services, Pittsburgh, PA, owned approximately 888 (52.85%) Class
A shares; Brian A. and Pamela M. Lee, Franklin Lakes, NJ, owned approximately
301 (17.94%) Class A shares; Joachim W. Hall and Barbara Schumann, Freeport, NY,
owned approximately 200 (11.93%) Class A shares; and Daniel C. and Margaret
Sblendorio, Middletown, NJ, owned approximately 192 (11.42%) Class A shares. As
of the same date, the following shareholders of record owned 5% or more of the
outstanding Class B shares of the German Equity Fund: Theodore and Alison J.
Mazurkiewicz, Lake Zurich, IL, owned 400 (55.56%) Class B shares; Investors Bank
& Trust Co., FBO Alison J. Mazurkiewicz Roth IRA, Lake Zurich, IL, owned 160
(22.22%) Class B shares; and Investors Bank & Trust Co., FBO Theodore
Mazurkiewicz Roth IRA, Lake Zurich, IL, owned 160 (22.22%) Class B shares.
As of March 20, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A shares of the Japanese Equity Fund: Federated
Administrative Services, Pittsburgh, PA, owned approximately 888 (74.75%) Class
A shares; and Daniel C. and Margaret Sblendorio, Middletown, NJ, owned
approximately 239 (20.15%) Class A shares. As of the same date, no shareholders
of record owned 5% or more of the outstanding Class B shares of the Japanese
Equity Fund.
As of March 20, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A shares of the Global Bond Fund: Robert J. and Diane
Pastor, Colts Neck, NJ, owned approximately 1,574 (44.54%) Class A shares; Wolf
A. Kluge, New York, NY, owned approximately 938 (26.54%) Class A shares; and
Federated Administrative Services, Pittsburgh, PA, owned approximately 888
(25.14%) Class A shares. As of the same date, no shareholders of record owned 5%
or more of the outstanding Class B shares of the Global Bond Fund.
As of March 20, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A shares of the European Bond Fund: Federated
Administrative Services, Pittsburgh, PA, owned approximately 888 (78.69%) Class
A shares; and Joachim W. Hall and Barbara Schumann, Freeport, NY, owned
approximately 197 (17.50%) Class A shares. As of the same date, no shareholders
of record owned 5% or more of the outstanding Class B shares of the European
Bond Fund.
Manager
- --------------------------------------------------------------------------------
The investment manager to each Portfolio is DFM, an indirect subsidiary of
Deutsche Bank AG, a major global banking institution head quarters in Germany.
DFM, with principal offices at 31 West 52nd Street, New York, New York 10019, is
a Delaware corporation and registered investment adviser under the Investment
Advisers Act of 1940.
Pursuant to an investment management agreement with the Portfolio Trust with
respect to each Portfolio (the "Management Agreement"), DFM acts as investment
manager to each Portfolio and, subject to the supervision of the Board of
Trustees of the Portfolio Trust, is responsible for, but may and has delegated
as described below, under "Adviser," the management of the investment operations
of each Portfolio's investments in accordance with its investment objective,
policies and restrictions. DFM also provides each Portfolio with overall
supervisory services over the other service providers and certain other
services. The investment management services DFM provides to each Portfolio are
not exclusive under the terms of the Management Agreement. DFM is free to render
similar investment management services to others.
The Management Agreement is dated July 28, 1997, and will remain in effect until
July 28, 1999, and from year to year thereafter, but only so long as the
agreement is specifically approved at least annually (i) by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the related Portfolio, or by the Portfolio Trust's Trustees, and
(ii) by a vote of a majority of the Trustees of the Portfolio Trust who are not
parties to such Management Agreement or "interested persons" (as defined in the
1940 Act) of the Portfolio Trust, cast in person at a meeting called for the
purpose of voting on such approval. The Management Agreement was initially
approved at a meeting held on July 28, 1997. The Management Agreement will
terminate automatically if assigned and is terminable at any time without
penalty by a vote of a majority of the Portfolio Trust's Trustees, or by a vote
of the holders of a majority of the related Portfolio's outstanding voting
securities, on 60 days' written notice to the Manager and by the Manager on 90
days' written notice to the Portfolio Trust. The Management Agreement provides
that neither DFM nor its personnel shall be liable for any error of judgment or
mistake of law or for any loss or expense in connection with the matters in
which the agreement relates, except a loss resulting from wilful misfeasance,
bad faith or gross negligence on its part in the performance of its obligations
and duties under the agreement. See "Additional Information."
As compensation for the services rendered and related expenses borne by DFM
under the Management Agreement with the Portfolio Trust with respect to each
Portfolio, DFM receives a fee from each of Top 50 World, Top 50 Europe and Top
50 Asia Portfolio, each Equity Portfolio (except the foregoing three Top 50
Portfolios) and each Bond Portfolio, which is computed daily and may be paid
monthly, equal to 1.00%, 0.85% and 0.75%, respectively, of the average daily net
assets of such Portfolio on an annualized basis for the Portfolio's then-current
fiscal year.
From the Portfolios' commencement of operations through February 28, 1998, DFM
earned management fees as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
COMMENCEMENT
PORTFOLIO OF OPERATIONS MANAGEMENT FEE
- ----------------------------------------------------------
<S> <C> <C>
Top 50 World Portfolio 10/2/97 $24,276
Top 50 Europe Portfolio 10/2/97 19,927
Top 50 Asia Portfolio 10/14/97 58,531
Top 50 US Portfolio 10/2/97 13,124
Provesta Portfolio 10/17/97 6,485
Investa Portfolio 10/17/97 6,593
Japanese Equity Portfolio 10/20/97 5,400
Global Bond Portfolio 10/15/97 7,704
European Bond Portfolio 10/17/97 6,256
- ----------------------------------------------------------
</TABLE>
The Glass-Steagall Act and other applicable laws generally prohibit banks
(including foreign banks having U.S. operations, such as Deutsche Bank AG) from
engaging in the business of underwriting or distributing securities in the
United States, and the Board of Governors of the Federal Reserve System has
issued an interpretation to the effect that under these laws a bank holding
company registered under the Federal Bank Holding Company Act (or a foreign bank
subject to such Act's provisions) or certain subsidiaries thereof may not
sponsor, organize, or control a registered open-end investment company
continuously engaged in the issuance of its shares, such as the Corporation. The
interpretation does not prohibit a holding company (or such a foreign bank) or a
subsidiary thereof from acting as investment manager and custodian to such an
investment company. Deutsche Bank AG believes that DFM may perform the services
for the Portfolio Trust and the Corporation contemplated by the Management
Agreement without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. It is possible that future changes in federal
statutes and regulations concerning the permissible activities of banks or trust
companies, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, might prevent
DFM from continuing to perform such services for each Portfolio.
Adviser
- --------------------------------------------------------------------------------
DFM has entered into an investment advisory agreement (the "Advisory Agreement")
dated July 28, 1997, on behalf of the Portfolio Trust with respect to each
Portfolio except Top 50 US Portfolio with DWS International Portfolio Management
GmbH and with respect to Top 50 US Portfolio with Deutsche Morgan Grenfell
Investment Management Inc. ("DMGIM"). It is the Adviser's responsibility, under
the overall supervision of DFM, to conduct the day-to-day investment decisions
of its respective Portfolio(s), arrange for the execution of portfolio
transactions and generally manage each Portfolio's investments in accordance
with its investment objective, policies and restrictions.
The DWS Adviser and DMGIM Adviser are each an indirect subsidiary of Deutsche
Bank AG. For these services, the respective Adviser receives from DFM a fee,
which is computed daily and may be paid monthly, equal to 0.75%, 0.60% and 0.50%
of the average daily net assets of each of Top 50 World, Top 50 Europe and Top
50 Asia Portfolio, each Equity Portfolio (except the foregoing Top 50
Portfolios) and each Bond Portfolio, respectively, on an annualized basis for
the Portfolio's then-current fiscal year.
The Advisory Agreement is dated July 28, 1997, and will remain in effect until
July 28, 1999, and from year to year thereafter, but only so long as the
agreement is specifically approved at least annually (i) by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the related Portfolio, or by the Portfolio Trust's Trustees, and
(ii) by a vote of a majority of the Trustees of the Portfolio Trust who are not
parties to such Advisory Agreement or "interested persons" (as defined in the
1940 Act) of the Portfolio Trust, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement was initially
approved at a meeting held on July 28, 1997. The Advisory Agreement will
terminate with respect to a Portfolio automatically if assigned or if the
Management Agreement is terminated with respect to that Portfolio and is
terminable at any time without penalty by a vote of a majority of the Portfolio
Trust's Trustees, or by a vote of the holders of a majority of the related
Portfolio's outstanding voting securities, on 60 days' written notice to the
relevant Adviser and by each Adviser on 90 days' written notice to the Manager
and the Portfolio Trust. The Advisory Agreement provides that neither the
Adviser nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss or expense in connection with the matters in which the
agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its obligations and duties
under the agreement. See "Additional Information."
For each Portfolio advised by the DWS Adviser there is a corresponding DWS Fund,
as follows (having launch dates and net assets as of March 31, 1998, as
indicated): Provesta Portfolio--Provesta (November 1985, $1.05 billion), Investa
Portfolio--Investa (December 1956, $2.44 billion), Japanese Equity Portfolio--
DWS-Japan Fonds (April 1992, $463 million), Global Bond Portfolio--Inter Renta
(July 1969, $10.8 billion), European Bond Portfolio--Eurorenta (November 1987,
$2.24 billion), Top 50 World Portfolio--Top 50 Welt (January 1997, $3.36
billion), Top 50 Europe Portfolio--Europa (October 1995, $1.65 billion), and Top
50 Asia Portfolio--Top 50 Asien (April 1996, $595 million).
Administrator
- --------------------------------------------------------------------------------
Under the master agreement for administration services with the Corporation
("Administration Agreement"), Federated Services Company serves as administrator
to the Funds ("Administrator"). In connection with its responsibilities as
Administrator of the Funds, Federated Services Company, among other things (i)
prepares, files and maintains the Funds' governing documents, registration
statements and regulatory filings; (ii) prepares and coordinates the printing of
publicly disseminated documents; (iii) monitors declaration and payment of
dividends and distributions; (iv) projects and reviews the Funds' expenses; (v)
performs internal audit examinations; (vi) prepares and distributes materials to
the Directors of the Corporation; (vii) coordinates the activities of all
service providers; (viii) monitors and supervises collection of tax reclaims;
and (ix) prepares shareholder meeting materials.
The Administration Agreement between the Corporation and Federated Services
Company (dated July 28, 1997) with respect to each Fund has an initial term of
three years. Thereafter, the Administration Agreement will remain in effect
until terminated by either party thereto. The agreement is terminable by the
Corporation at any time after the initial term without penalty by a vote of a
majority of the Directors of the Corporation, or by a vote of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Corporation (see "Additional Information"). The Administration Agreement is
terminable by the Directors of the Corporation or shareholders of the Fund on 60
days' written notice to Federated Services Company. The agreement is terminable
by the Administrator on 90 days' written notice to the Corporation. The
Administration Agreement provides that neither Federated Services Company nor
its personnel shall be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in its
services, except for wilful misfeasance, bad faith or gross negligence or
reckless disregard of its obligations and duties under the Agreement. See
"Additional Information."
As Administrator of the Funds, Federated Services Company receives a fee from
each Fund, which is computed daily and may be paid monthly, at the annual rate
of 0.065% of the average daily net assets of each Fund up to $200 million and
0.0525% of the average daily net assets of each Fund greater than $200 million
for the Fund's then-current fiscal year. The Administrator receives a minimum
fee of $75,000 per Fund annually, except that during the first two years of the
agreement a minimum aggregate fee for each Portfolio, corresponding Fund and any
other fund investing in the Portfolio, taken together, of $75,000 for the first
year of the Fund's operation and $125,000 for the second year will be paid to
the Operations Agent (as defined below) and the Administrator.
From the Funds' commencement of operations through February 28, 1998, the Funds
incurred costs for administrative services as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
COMMENCEMENT
FUNDS OF OPERATIONS ADMINISTRATIVE FEE
- ----------------------------------------------------------
<S> <C> <C>
Top 50 World 10/2/97 $ 5
Top 50 Europe 10/2/97 4
Top 50 Asia 10/14/97 3
Top 50 US 10/2/97 164
European Mid-Cap Fund 10/17/97 3
German Equity Fund 10/17/97 3
Japanese Equity Fund 10/20/97 2
Global Bond Fund 10/15/97 3
European Bond Fund 10/17/97 3
- ----------------------------------------------------------
</TABLE>
Operations Agent
- --------------------------------------------------------------------------------
Under an operations agency agreement with the Portfolio Trust ("Operations
Agency Agreement"), Federated Services Company serves as operations agent to the
Portfolios ("Operations Agent"). In connection with its responsibilities as
Operations Agent of the Portfolios, Federated Services Company, among other
things, (i) prepares governing documents, registration statements and regulatory
filings; (ii) performs internal audit examinations (iii) prepares expense
projections; (iv) prepares materials for the Trustees of the Portfolio Trust;
(v) coordinates the activities of all service providers; (vi) conducts
compliance training for the Adviser; (vii) prepares investor meeting materials
and (viii) monitors and supervises collection of tax reclaims.
The Operations Agency Agreement between the Portfolio Trust and Federated
Services Company (dated July 28, 1997) with respect to each Portfolio has an
initial term of three years. Thereafter, the Operations Agency Agreement will
remain in effect until terminated by either party thereto. The agreement is
terminable by the Portfolio Trust at any time after the initial term without
penalty by a vote of a majority of the Trustees of the Portfolio Trust, or by a
vote of the holders of a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the Portfolio Trust (see "Additional Information").
The Operations Agency Agreement is terminable by the Trustees of the Portfolio
Trust or investors of the Portfolio on 60 days' written notice to Federated
Services Company. The agreement is terminable by Federated Services Company on
90 days' written notice to the Portfolio Trust. The Operations Agency Agreement
provides that neither Federated Services Company nor its personnel shall be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in its services, except for wilful
misfeasance, bad faith or gross negligence or reckless disregard of its
obligations and duties under the Agreement.
As Operations Agent of the Portfolios, Federated Services Company receives a fee
from each Portfolio, which is computed daily and paid monthly, at the annual
rate of 0.035% of the average daily net assets of each Portfolio for the
Portfolio's then-current fiscal year. The Operations Agent of the Portfolios
receives a minimum fee of $60,000 per Portfolio annually, except that during the
first two years of the agreement minimum aggregate fees for each Portfolio,
corresponding Fund and any other fund investing in the Portfolio, taken
together, of $75,000 for the first year of the Portfolio's operation and
$125,000 for the second year, will be paid to the Operations Agent and the
Administrator.
From the Portfolios' commencement of operations through February 28, 1998, the
Portfolios incurred Operations Agency fees as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------
COMMENCEMENT OPERATIONS
PORTFOLIO OF OPERATIONS AGENT FEE
- ------------------------------------------------------
<S> <C> <C>
Top 50 World Portfolio 10/2/97 $30,207
Top 50 Europe Portfolio 10/2/97 30,317
Top 50 Asia Portfolio 10/14/97 26,888
Top 50 US Portfolio 10/2/97 30,329
Provesta Portfolio 10/17/97 27,544
Investa Portfolio 10/17/97 27,540
Japanese Equity Portfolio 10/20/97 27,370
Global Bond Portfolio 10/15/97 27,888
European Bond Portfolio 10/17/97 27,526
</TABLE>
Administrative Agent
- -------------------------------------------------------------------------------
Under an administration agreement with the Portfolio Trust ("Administration
Agreement"), IBT Trust Company (Cayman) Ltd. ("IBT (Cayman)") serves as
administrative agent to the Portfolios ("Administrative Agent"). In connection
with its responsibilities as Administrative Agent of the Portfolios, IBT
(Cayman) (i) files and maintains governing documents, registration statements
and regulatory filings; (ii) maintains a telephone line; (iii) approves annual
expense budget; (iv) authorizes expenses; (v) distributes materials to the
Trustees of the Portfolio Trust; (vi) authorizes dividend distributions; (vii)
maintains books and records; (viii) files tax returns and (ix) maintains an
investor register.
The Administration Agreement between the Portfolio Trust and IBT (Cayman) (dated
July 28, 1997) with respect to each Portfolio has an initial term of three
years. Thereafter, the Administration Agreement will remain in effect until
terminated by either party thereto. The agreement is terminable by the Portfolio
Trust at any time after the initial term without penalty by a vote of a majority
of the Trustees of the Portfolio Trust, or by a vote of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Portfolio Trust (see "Additional Information"). The Administration Agreement
is terminable by the Trustees of the Portfolio Trust or investors of the
Portfolio on 60 days' written notice to IBT (Cayman). The agreement is
terminable by IBT (Cayman) on 90 days' written notice to the Portfolio. The
Administration Agreement provides that neither IBT (Cayman) nor its personnel
shall be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in its services, except
for wilful misfeasance, bad faith or gross negligence or reckless disregard of
its obligations and duties under the Agreement.
As Administrative Agent of the Portfolios, IBT (Cayman) receives a fee from each
Portfolio, which may be paid monthly, at the annual rate of $5,000.
From the Portfolios' commencement of operations through February 28, 1998, the
Portfolios incurred Administrative Agency fees as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
COMMENCEMENT ADMINISTRATIVE
PORTFOLIO OF OPERATIONS AGENT FEE
- -----------------------------------------------------------
<S> <C> <C>
Top 50 World Portfolio 10/2/97 $16,438
Top 50 Europe Portfolio 10/2/97 16,438
Top 50 Asia Portfolio 10/14/97 15,123
Top 50 US Portfolio 10/2/97 16,438
Provesta Portfolio 10/17/97 14,795
Investa Portfolio 10/17/97 14,795
Japanese Equity Portfolio 10/20/97 14,685
Global Bond Portfolio 10/15/97 15,014
European Bond Portfolio 10/17/97 14,795
</TABLE>
Distributor
- -----------------------------------------------------------
The distribution agreement (the "Distribution Agreement") (dated July 28, 1997)
between the Corporation and Edgewood Services, Inc. (the "Distributor") remains
in effect indefinitely, but only so long as such agreement is specifically
approved at least annually (i) by a vote of the holders of a "majority of the
outstanding voting securities" (as defined in the 1940 Act) of the related Fund,
or by the Corporation's Directors, and (ii) by a vote of a majority of the
Directors of the Corporation who are not parties to such Distribution Agreement
or "interested persons" (as defined in the 1940 Act) of the Corporation, cast in
person at a meeting called for the purpose of voting on such approval. The
Distribution Agreement terminates automatically if assigned by either party
thereto and is terminable with respect to each Fund at any time without penalty
by a vote of a majority of the Directors of the Corporation or by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Fund (see "Additional Information"). The Distribution Agreement
is terminable with respect to each Fund by the Corporation's Directors or
shareholders of a Fund on 60 days' written notice to Edgewood. The Agreement is
terminable by the Distributor on 90 days' written notice to the Corporation.
The Distributor is not obligated to sell any specific number of shares. Under a
plan adopted in accordance with Rule 12b-1 of the 1940 Act on July 28, 1997,
Class B shares are subject to a distribution plan (the "Distribution Plan") and
Class A shares and Class B shares are subject to a service plan (the "Service
Plan").
Under the Distribution Plan, Class B shares of each Fund will pay a fee to the
Distributor in an amount computed at an annual rate of 0.75% of the average
daily net assets of the Fund represented by Class B shares to finance any
activity which is principally intended to result in the sale of Class B shares
of the Fund subject to the Distribution Plan. A report of the amounts expended
pursuant to the Distribution Plan, and the purposes for which such expenditures
were incurred, must be made to the Directors of the Corporation for review at
least quarterly.
From the Funds' commencement of operations through February 28, 1998, the Funds
incurred distribution fees as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------
COMMENCEMENT
FUNDS OF OPERATIONS DISTRIBUTION FEE
- --------------------------------------------------------
<S> <C> <C>
Top 50 World 10/2/97 $ 20
- --------------------------------------------------------
Top 50 Europe 10/2/97 13
- --------------------------------------------------------
Top 50 Asia 10/14/97 11
- --------------------------------------------------------
Top 50 US 10/2/97 630
- --------------------------------------------------------
European Mid-Cap Fund 10/17/97 12
- --------------------------------------------------------
German Equity Fund 10/17/97 13
- --------------------------------------------------------
Japanese Equity Fund 10/20/97 9
- --------------------------------------------------------
Global Bond Fund 10/15/97 11
- --------------------------------------------------------
European Bond Fund 10/17/97 11
- --------------------------------------------------------
</TABLE>
The Distribution Plan provides that it may not be amended to increase materially
the costs which a Fund may bear pursuant to the Distribution Plan without
shareholder approval and that other material amendments of the Distribution Plan
must be approved by the Directors of the Corporation, and by the Directors who
have no direct or indirect financial interest in the operation of the
Distribution Plan or any related agreement and are not "interested persons" (as
defined in the 1940 Act) of the Corporation ("Qualifying Directors"), by vote
cast in person at a meeting called for the purpose of considering such
amendments. While the Distribution Plan is in effect, the selection and
nomination of the Directors of the Corporation have been committed to the
discretion of the Qualifying Directors. The Distribution Plan has been approved,
and is subject to annual approval, by the Directors of the Corporation and the
Qualifying Directors, by vote cast in person at a meeting called for the purpose
of voting on the Distribution Plan. The Qualifying Directors voted to approve
the Distribution Plan at a meeting held on July 28, 1997. The Distribution Plan
is terminable with respect to the Class B shares of a Fund at any time by a vote
of a majority of the Qualifying Directors or by vote of the holders of a
majority of the Class B shares of that Fund.
Transfer Agent, Custodian, and Fund Accountant
- --------------------------------------------------------------------------------
Federated Shareholder Services Company, Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779, serves as the transfer agent and dividend disbursing
agent for each Fund. As Transfer Agent and Dividend Disbursing Agent, Federated
Shareholder Services Company is responsible for maintaining account records
detailing the ownership of Fund shares and for crediting income, capital gains
and other changes in share ownership to shareholder accounts. Investors Bank &
Trust Company, 200 Clarendon Street, Boston, MA 02116 acts as the custodian of
each Fund's and each Portfolio's assets. Pursuant to the Custodian Contract with
the Portfolio Trust, IBT is responsible for maintaining the books and records of
portfolio transactions and holding portfolio securities and cash. In the case of
foreign assets held outside the United States, IBT employs various subcustodians
who were approved in accordance with the regulations of the SEC. The Custodian
maintains portfolio transaction records. IBT Fund Services (Canada) Inc., One
First Canadian Place, King Street West, Suite 2800, P.O. Box 231, Toronto,
Ontario M5X1C8, provides fund accounting services to the Funds and the
Portfolios including (i) calculation of the daily net asset value for the Funds
and the Portfolios; (ii) monitoring compliance with investment portfolio
restrictions, including all applicable federal and state securities and other
regulatory requirements; and (iii) monitoring each Fund's and Portfolio's
compliance with the requirements applicable to a regulated investment company
under the Code.
Independent Accountants
- --------------------------------------------------------------------------------
The independent accountants of the Corporation are Price Waterhouse LLP, 1177
Avenue of the Americas, New York, NY 10036. The independent accountants of the
Portfolio Trust are Price Waterhouse LLP, Kaya W.F.G. (Jombi), Mensing #18, P.O.
Box 46, Curacao, Netherlands Antilles. The independent accountants conduct
annual audits of financial statements, assist in the preparation and/or review
of federal and state income tax returns and provide consulting as to matters of
accounting and federal and state income taxation for each Fund or Portfolio, as
the case may be.
Purchase of Shares
- --------------------------------------------------------------------------------
Except under certain circumstances described in a Fund's Prospectus, Shares are
sold at their net asset value (plus a sales charge on Class A shares only) on
days the New York Stock Exchange is open for business. The procedure for
purchasing shares is explained in each Prospectus under "Purchase of Shares."
Each Fund has authorized one or more brokers to accept on its behalf purchase
and redemption orders. These brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on each Fund's behalf.
Each Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Shareholder orders will be priced at a Fund's net asset value next
computed after they have been accepted by an authorized broker or the broker's
authorized designee.
Conversion to Federal Funds
It is each Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Federated Shareholder Services Company acts as the shareholder's
agent in depositing checks and converting them to federal funds.
Redemption of Shares
- --------------------------------------------------------------------------------
Each Fund redeems Shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after a Fund receives the
redemption request. Redemption procedures are explained in each Fund's
Prospectus under "Redemption of Shares." Although the transfer agent does not
charge for telephone redemptions, it reserves the right to charge a fee for the
cost of wire-transferred redemptions of less than $5,000.
Class B shares redeemed within six years of purchase and applicable Class A
Shares redeemed within one year of purchase may be subject to a contingent
deferred sales charge. The amount of the contingent deferred sales charge is
based upon the amount of the administrative fee paid at the time of purchase by
the Distributor to the financial institution for services rendered, and the
length of time the investor remains a shareholder in a Fund. Should Financial
Intermediaries elect to receive an amount less than the fee that is stated in a
Fund's Prospectus for servicing a particular shareholder, the contingent
deferred sales charge and/or holding period for that particular shareholder will
be reduced accordingly.
Since portfolio securities of each Portfolio may be traded on foreign exchanges
which trade on Saturdays or on holidays on which a Fund will not make
redemptions, the net asset value of each class of Shares of a Fund may be
significantly affected on days when shareholders do not have an opportunity to
redeem their Shares.
Redemption in Kind
Although the Corporation intends to redeem Shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio. In such a case,
the portfolio instruments to be distributed as redemption proceeds would be
valued in the same way as the Portfolio determines net asset value. The
portfolio instruments will be selected in a manner that the Directors of the
Corporation and Trustees of the Portfolio deem fair and equitable. To the extent
available, such securities will be readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
Elimination of the Contingent Deferred Sales Charge
The Systematic Withdrawal Program permits the shareholder to request withdrawal
of a specified dollar amount (minimum $100) on either a monthly or quarterly
basis from accounts with $10,000 minimum at the time the shareholder elects to
participate in the Systematic Withdrawal Program. The amounts that a shareholder
may withdraw under a Systematic Withdrawal Program that qualify for elimination
of the contingent deferred sales charge may not exceed 12% annually with
reference initially to the value of the Class B shares upon establishment of the
Systematic Withdrawal Program and then as calculated at the fiscal year end.
Amounts that exceed the 12% annual limit for redemption, as described, will be
subject to the contingent deferred sales charge. In determining the
applicability of the contingent deferred sales charge, the 12 month holding
requirement for any new Class B shares received through an exchange will include
the period for which the exchanged Class B shares were held. However, for
purposes of meeting the $10,000 minimum account value requirement, Class B share
account values will not be aggregated.
Exchange of Shares
- --------------------------------------------------------------------------------
An investor may exchange shares from any series of the Deutsche Funds, Inc. (a
"Deutsche Fund") into any other Deutsche Fund, as described under "Exchange of
Shares" in each Fund's Prospectus. For complete information, the prospectus as
it relates to each Fund into which a transfer is being made should be read prior
to the transfer. Requests for exchange are made in the same manner as requests
for redemptions. See "Redemption of Shares." Shares of a Fund to be acquired are
purchased for settlement when the proceeds from redemption become available. The
Corporation reserves the right to discontinue, alter or limit the exchange
privilege at any time.
Net Asset Value
- --------------------------------------------------------------------------------
Each Fund computes its net asset value once daily on Monday through Friday as
described under "Net Asset Value" in the Prospectus. The net asset value will
not be computed on the day the following legal holidays are observed: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. On days when
U.S. trading markets close early in observance of these holidays, each Fund and
its corresponding Portfolio would expect to close for purchases and redemptions
at the same time. The days on which net asset value is determined are the Fund's
business days.
The net asset value of a Fund is equal to the value of such Fund's investment in
its corresponding Portfolio (which is equal to that Fund's pro rata share of the
total investment of the Fund and of any other investors in the Portfolio less
the Fund's pro rata share of the Portfolio's liabilities) less the Fund's
liabilities.
Fixed Income Securities
The fixed income portion of the Portfolios and portfolio securities with a
maturity of 60 days or more, including securities that are listed on an exchange
or traded over the counter, are valued using prices supplied daily by an
independent pricing service or services that (i) are based on the last sale
price on a national securities exchange or, in the absence of recorded sales, at
the average of readily available closing bid and asked prices on such exchange
or at the average of readily available closing bid and asked prices in the
over-the-counter market, if such exchange or market constitutes the broadest and
most representative market for the security and (ii) in other cases, take into
account various factors affecting market value, including yields and prices of
comparable securities, indication as to value from dealers and general market
conditions. If such prices are not supplied by a Portfolio's independent pricing
service, such securities are priced in accordance with procedures adopted by the
Trustees of the Portfolio Trust. All portfolio securities with a remaining
maturity of less than 60 days are valued by the amortized cost method.
Other Securities
The value of investments listed on a U.S. securities exchange, other than
options on stock indexes, is based on the last sale prices on the New York Stock
Exchange at 4:00 p.m. (U.S. Eastern time) or, in the absence of recorded sales,
at the average of readily available closing bid-and-asked prices on such
exchange. Securities listed on a foreign exchange considered by the Adviser to
be a primary market for the securities are valued at the last quoted sale price
available before the time when net assets are valued. Unlisted securities, and
securities for which the Adviser determines the listing exchange is not a
primary market, are valued at the average of the quoted bid-and-asked prices in
the over-the-counter market. The value of each security for which readily
available market quotations exist is based on a decision as to the broadest and
most representative market for such security. For purposes of calculating net
asset value, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars at the prevailing market rates
available at the time of valuation.
Options on stock indexes traded on U.S. national securities exchanges are valued
at the close of options trading on such exchanges which is currently 4:10 p.m.
(U.S. Eastern time). Stock index futures and related options, which are traded
on U.S. futures exchanges, are valued at their last sales price as of the close
of such futures exchanges which is currently 4:15 p.m. (U.S. Eastern time).
Options, futures contracts and warrants traded on a foreign stock exchange or on
a foreign futures exchange are valued at the last price available before the
time when the net assets are valued. Securities or other assets for which market
quotations are not readily available (including certain restricted and illiquid
securities) are valued at fair value in accordance with procedures established
by and under the general supervision and responsibility of the Trustees of the
Portfolio Trust. Such procedures include the use of independent pricing services
that use prices based upon yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions.
Trading in securities on most foreign exchanges and over-the-counter markets is
normally completed before the close of the New York Stock Exchange and may also
take place on days on which the New York Stock Exchange is closed. If events
materially affecting the value of securities occur between the time when the
exchange on which they are traded closes and the time when a Portfolio's net
asset value is calculated, such securities will be valued at fair value in
accordance with procedures established by and under the general supervision of
the Trustees.
Performance Data
- --------------------------------------------------------------------------------
From time to time, a Fund may quote performance in reports, sales literature and
advertisements published by the Corporation. Current performance information for
a Fund may be obtained by calling the number provided on the cover page of this
Statement of Additional Information. See also "Management of the Corporation and
the Portfolio Trust - Performance Information" in the Prospectus.
Total Return Quotations
As required by regulations of the SEC, the annualized total return of a Fund for
a period is computed by assuming a hypothetical initial payment of $1,000. It is
then assumed that all of the dividends and distributions by a Fund over the
period are reinvested. It is then assumed that at the end of the period, the
entire amount is redeemed. The annualized total return is then calculated by
determining the annual rate required for the initial payment to grow to the
amount which would have been received upon redemption.
Average annual total return for each class of Shares of the Funds is the average
compounded rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of Shares owned at the
end of the period by the net asset value per share at the end of the period. The
number of Shares owned at the end of the period is based on the number of Shares
purchased at the beginning of the period with $1,000, less any applicable sales
charge, adjusted over the period by any additional Shares, assuming the annual
reinvestment of all dividends and distributions.
Any applicable contingent deferred sales charge is deducted from the ending
value of the investment based on the lesser of the original purchase price or
the net asset value of Shares redeemed.
Aggregate total returns, reflecting the cumulative percentage change over a
measuring period, may also be calculated.
The Funds' total return based on offering price for Class A shares for the
period from commencement of operations through February 28, 1998 were:
<TABLE>
<CAPTION>
- -----------------------------------------------------
COMMENCEMENT
FUND OF OPERATIONS TOTAL RETURN
- -----------------------------------------------------
<S> <C> <C>
Top 50 World 10/2/97 7.76%
Top 50 Europe 10/2/97 7.12%
Top 50 Asia 10/14/97 6.48%
Top 50 US 10/2/97 11.52%
European Mid-Cap Fund 10/17/97 5.52%
German Equity Fund 10/17/97 10.00%
Japanese Equity Fund 10/20/97 13.20%
Global Bond Fund 10/15/97 1.84%
European Bond Fund 10/17/97 1.92%
Yield
- -----------------------------------------------------
</TABLE>
The yield for each class of Shares of the Funds is determined by dividing the
net investment income per share (as defined by the SEC) earned by any class of
Shares over a 30-day period by the maximum offering price per share of the
respective class on the last day of the period. This value is annualized using
semi-annual compounding. This means that the amount of income generated during
the 30-day period is assumed to be generated each month over a 12-month period
and is reinvested every six months. The yield does not necessarily reflect
income actually earned by a Fund because of certain adjustments required by the
SEC and, therefore, may not correlate to the dividends or other distributions
paid to the shareholders.
To the extent that Financial Intermediaries and broker-dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.
The yields for the Class A shares of the Global Bond Fund and European Bond Fund
for the thirty-day period ended February 28, 1998, were 4.03% and 3.78%,
respectively.
General
The performance of each of the classes of Shares will vary from time to time
depending upon market conditions, the composition of a Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of a Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in advertising
a Fund's shares, including appropriate market indices or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
Information and Comparisons Relating to the Funds, Secondary Market Trading, Net
Asset Size, Performance and Tax Treatment
Information regarding various aspects of each Fund, including the net asset size
thereof, as well as the performance and the tax treatment of Fund shares, may be
included from time to time in advertisements, sales literature and other
communications as well as in reports to current or prospective investors.
Information may be provided to prospective investors to help such investors
assess their specific investment goals and to aid in their understanding of
various financial strategies. Such information may present current economic and
political trends and conditions and may describe general principles of investing
such as asset allocation, diversification and risk tolerance, as well as
specific investment techniques.
Information regarding the net asset size of a Fund may be stated in
communications to prospective or current investors for one or more time periods,
including annual, year-to-date or daily periods. Such information may also be
expressed in terms of the total number of Fund Shares outstanding as of one or
more time periods. Factors integral to the size of a Fund's net assets, such as
the volume and activity of purchases and redemptions of Fund Shares, may also be
discussed, and may be specified from time to time or with respect to various
periods of time. Comparisons of such information during various periods may also
be made and may be expressed by means of percentages.
Information may be provided to investors regarding capital gains distributions
by the Funds, including historical information relating to such distributions.
Comparisons between the Funds and other investment vehicles such as mutual funds
may be made regarding such capital gains distributions, including the expected
effects of differing levels of portfolio adjustments on such distributions and
the potential tax consequences thereof.
Information may also be provided in communications to prospective or current
investors comparing and contrasting the relative advantages of investing in Fund
Shares as compared to other investment vehicles, such as mutual funds, both on
an individual and a group basis (e.g., stock index mutual funds). Such
information may include comparisons of costs, expense ratios, expressed either
in dollars or basis points, stock lending activities, permitted investments and
hedging activities (e.g., engaging in options or futures transactions), price
volatility and portfolio turnover data and analyses. In addition, such
information may quote, reprint or include portions of financial, scholarly or
business publications or periodicals, including model allocation schedules or
portfolios as the foregoing relate to the comparison of Fund Shares to other
investment vehicles, current economic financial and political conditions,
investment philosophy or techniques or the desirability of owning Fund Shares.
Such information may be provided both before and after deduction of sales
charges.
Information on the performance of a Fund on the basis of changes in net asset
value per fund share, with or without reinvesting all dividends and/or any
distributions of capital in additional Fund Shares, may be included from time to
time in a Fund's performance reporting. The performance of a Fund may also be
compared to the performance of money managers as reported in market surveys such
as SEI Fund Evaluation Survey (a leading data base of tax-exempt fund) or mutual
funds such as those reported by Lipper Analytical Services, Morningstar,
Micropal, Money Magazine's Fund Watch or Wiesenberger Investment Companies
Service, each of which measures performance following their own specific and
well-defined calculation measures, or of the NYSE Composite Index, the American
Stock Exchange Index (indices of stocks traded on the New York and American
Stock Exchanges, respectively), the Dow Jones Industrial Average (an index of 30
widely traded industrial common stocks), any widely recognized foreign stock and
bond index or similar measurement standards during the same period of time.
Information relating to the relative net asset value performance of Fund Shares
may be compared against a wide variety of investment categories and asset
classes, including common stocks, small capitalization stocks, ADRs, long and
intermediate term corporate and government bonds, Treasury bills, futures
contracts, the rate of inflation in the United States (based on the Consumer
Price Index ("CPI") or other recognized indices) and other capital markets and
combinations thereof. Historical returns of the capital markets relating to a
Fund may be provided by independent statistical studies and sources, such as
those provided to Ibbotson Associates. The performance of these capital markets
is based on the returns of different indices. Information may be presented using
the performance of these and other capital markets to demonstrate general
investment strategies. So, for example, performance of Fund Shares may be
compared to the performance of selected asset classes such as short-term U.S.
Treasury bills, long-term U.S. Treasury bonds, long-term corporate bonds, mid-
capitalization stocks, small capitalization stocks and various classes of
foreign stocks and may also be measured against the rate of inflation as set
forth in well-known indices (such as the CPI). Performance comparisons may also
include the value of a hypothetical investment in any of these capital markets.
Performance of Fund Shares may also be compared to that of other indices or
compilations that may be developed and made available to the investing public in
the future. Of course, such comparisons will only reflect past performance of
Fund Shares and the investment categories, indices or compilations chosen and no
guarantees can be made of future results regarding the performance of either
Fund Shares or the asset classes chosen for such comparisons.
Comparative performance information may be used from time to time in advertising
each Fund's shares. The performance of the:
. European Mid-Cap Fund may be compared to the DAX Composite Index ("CDAX"),
Financial Times ("FT")/Standard & Poor's Medium-Small Cap Europe Index,
Deutscher Aktien Index ("DAX"), DSX Mid-Cap, and Morgan Stanley Capital Index
("MSCI") - Europe Index;
. German Equity Fund may be compared to DAX, CDAX, MSCI-Germany Index, and FT-
Europe Index;
. Japanese Equity Fund may be compared to Tokyo Price Index ("TOPIX"), Nikkei-
225 Index, and MSCI Japan Index;
. Global Bond Fund may be compared to JPM Global Government Bond Index, and
Salomon Brothers World Government Bond Index;
. European Bond Fund may be compared to JPM European Government Bond Index,
Salomon Brothers European World Government Bond Index, and EFFAS Government
Bond Index;
. Top 50 World may be compared to MSCI-World Index;
. Top 50 Europe may be compared to MSCI-Europe Index;
. Top 50 Asia may be compared to MSCI Combined Far East Index and MSCI Combined
Far East ex Japan Index;
. Top 50 US may be compared to Standard & Poor's 500 Index.
Each index is an unmanaged index of common security prices, converted into U.S.
dollars where appropriate. Any index selected by a Fund for information purposes
may not compute total return in the same manner as the Funds and may exclude,
for example, dividends paid, brokerage and other fees.
Information comparing the portfolio holdings relating to a particular Fund, with
those of relevant stock indices or other investment vehicles, such as mutual
funds or futures contracts, may be advertised or reported by the Fund. Equity
analytic measures, such as price/earnings ratio, price/book value and price/cash
flow and market capitalizations, may be calculated for the portfolio holdings
and may be reported on an historical basis or on the basis of independent
forecasts.
Information may be provided by a Fund on the total return for various composites
of the different Funds. These composite returns might be compared to other
securities or indices utilizing any of the comparative measures that might be
used for the individual Fund, including correlations, standard deviation, and
tracking error analysis.
Past results may not be indicative of future performance. The investment return
and net asset value of shares of each Fund will fluctuate so that the shares,
when redeemed, may be worth more or less than their original cost.
Economic and Market Information
Advertising and sales literature for the Funds may include discussions of
economic, financial and political developments and their effect on the
securities market. For example, such advertisements and/or sales literature may
include statements such as the following, setting forth the Manager's views on
certain trends and/or opportunities: European companies are among the world's
strongest, from which an investor could derive potential benefits by investing
in high-quality European companies with strong balance sheets; Europe's stock
markets are growing quickly because Europeans are turning to equities, seeking
higher long-term return potential, which creates opportunities for non-European
investors; the advent of the European Monetary Union, and the resultant single
currency is expected to spur dramatic change by galvanizing Europe into a
single, globally competitive economy; and European companies are working to
improve shareholder value through restructuring aimed at operating more
efficiently and meeting performance targets. Such discussions may also take the
form of commentary on these developments by Fund or Portfolio managers and their
views and analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute.
Portfolio Transactions
- --------------------------------------------------------------------------------
The Portfolio Trust trades securities for a Portfolio if it believes that a
transaction net of costs (including custodian charges) will help achieve the
Portfolio's investment objective. Changes in a Portfolio's investments are made
without regard to the length of time a security has been held, or whether a sale
would result in the recognition of a profit or loss. Therefore, the rate of
turnover is not a limiting factor when changes are appropriate. Specific
decisions to purchase or sell securities for a Portfolio are made by its
portfolio manager who is an employee of the Adviser. The portfolio manager may
serve other clients of the Adviser in a similar capacity.
The primary consideration in placing portfolio securities transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting
broker-dealers to execute transactions on behalf of the Portfolios and other
clients of the Adviser on the basis of their professional capability, the value
and quality of their brokerage services, and the level of their brokerage
commissions. In the case of securities traded in the over-the-counter market
(where no stated commissions are paid but the prices include a dealer's markup
or markdown), the Adviser normally seeks to deal directly with the primary
market makers, unless in its opinion, best execution is available elsewhere. In
the case of securities purchased from underwriters, the cost of such securities
generally includes a fixed underwriting commission or concession. From time to
time, soliciting dealer fees are available to the Adviser on the tender of a
Portfolio's securities in so-called tender or exchange offers.
In connection with the selection of such brokers or dealers and the placing of
such orders, the Adviser seeks for each Portfolio in its best judgment, prompt
execution in an effective manner at the most favorable price. Subject to this
requirement of seeking the most favorable price, securities may be bought from
or sold to broker-dealers who have furnished statistical, research and other
information or services to the Adviser or the Portfolio, subject to any
applicable laws, rules and regulations.
The investment advisory fee that each Portfolio pays to the Adviser will not be
reduced as a consequence of the Adviser's receipt of brokerage and research
services. While such services are not expected to reduce the expenses of the
Adviser, the Adviser would, through the use of the services, avoid the
additional expenses which would be incurred if it should attempt to develop
comparable information through its own staff or obtain such services
independently.
In certain instances there may be securities that are suitable as an investment
for a Portfolio as well as for one or more of the Adviser's other clients.
Investment decisions for the Portfolios and for the Adviser's other clients are
made with a view to achieving their respective investment objectives. It may
develop that a particular security is bought or sold for only one client even
though it might be held by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the same security. Some simultaneous transactions are
inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could adversely affect the
price of or the size of the position obtainable in a security for a Portfolio.
When purchases or sales of the same security for a Portfolio and for other
portfolios managed by the Adviser occur contemporaneously, the purchase or sale
orders may be aggregated in order to obtain any price advantages available to
large volume purchases or sales.
Portfolio Turnover
For the period from October 9, 1997 (date of initial public investment) to
February 28, 1998, the portfolio turnover rate of the Top 50 US Portfolio was
18.33%. The portfolio turnover rate is representative of only 5 months of
activity.
For the period from December 18, 1997 (date of initial public investment) to
February 28, 1998, the portfolio turnover rate of the Top 50 World Portfolio,
Top 50 Europe Portfolio, and Provesta Portfolio was 61.92%, 21.84%, and 23.20%,
respectively. The portfolio turnover rates are representative of only 10 weeks
of activity.
For the period from January 8, 1998 (date of initial public investment) to
February 28, 1998, the portfolio turnover rate of the Top 50 Asia Portfolio was
8.72%. The portfolio turnover rate is representative of only 7 weeks of
activity.
For the period from January 22, 1998 (date of initial public investment) to
February 28, 1998, the portfolio turnover rate of the Investa Portfolio, and
European Bond Portfolio was 16.66%, and 28.84%, respectively. The portfolio
turnover rates are representative of only 5 weeks of activity.
For the period from February 12, 1998 (date of initial public investment) to
February 28, 1998, the portfolio turnover rate of the Japanese Equity Portfolio,
and Global Bond Portfolio was 41.15%, and 22.25%, respectively. The portfolio
turnover rates are representative of only 2 weeks of activity.
Taxes
- --------------------------------------------------------------------------------
The following information supplements and should be read in conjunction with the
sections in the Prospectus entitled "Dividends and Distributions" and "Taxes."
United States Taxation
General
Each Fund intends to qualify and intends to remain qualified as a regulated
investment company (a "RIC") under Subchapter M of the Code. As a RIC, a
Fund must, among other things: (a) derive at least 90% of its gross income
from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities
or foreign currency and other income (including but not limited to gains
from options, futures, and forward contracts) derived with respect to its
business of investing in such stock, securities or foreign currency; (b)
derive less than 30% of its gross income from the sale or other disposition
of stock, securities, options, futures or forward contracts (other than
options, futures or forward contracts on foreign currencies) held less than
three months; and (c) diversify its holdings so that, at the end of each
fiscal quarter, (i) at least 50% of the value of the Fund's total assets is
represented by cash, U.S. Government securities, investments in other RICs
and other securities limited in respect of any one issuer, to an amount not
greater than 5% of the Fund's total assets, and 10% of the outstanding
voting securities of such issuer and (ii) not more than 25% of the value of
its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or the securities of other RICs). As a RIC,
a Fund (as opposed to its shareholders) will not be subject to federal
income taxes on the net investment income and capital gains that it
distributes to its shareholders, provided that at least 90% of its net
investment income and realized net short-term capital gains in excess of
net long-term capital losses for the taxable year is distributed.
Legislation recently passed by Congress eliminates the short-short rule
described above in clause (b) and makes certain other changes. Investors
should consult their tax adviser for further details.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to currently distribute specific percentages of their ordinary
taxable income and capital gain net income (excess of capital gains over
capital losses) for each calendar year. Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar
year to avoid liability for this excise tax.
Any dividend declared by a Fund in October, November or December of any
calendar year and payable to shareholders of record on a specified date in
such a month shall be deemed to have been received by each shareholder on
December 31 of such calendar year and to have been paid by the Fund not
later than such December 31 so long as the dividend is actually paid by the
Fund during January of the following calendar year.
If a Portfolio purchases shares in certain foreign investment entities,
referred to as "passive foreign investment companies," the Fund may be
subject to U.S. federal income tax, and an additional charge in the nature
of interest, on a portion of any "excess distribution" from such company or
gain from the disposition of such shares, even if the distribution or gain
is paid by the Fund as a dividend to its shareholders. If the Fund were
able and elected to treat a passive foreign investment company as a
"qualified electing fund," in lieu of the treatment described above, the
Fund would be required each year to include in income, and distribute to
shareholders in accordance with the distribution requirement set forth
above, the Fund's pro rata share of the ordinary earnings and net capital
gains of the company, whether or not distributed to the Fund. Under
proposed Regulations, if finalized, or proposed legislation, if enacted,
the Fund could instead elect to mark-to-market the shares annually, in
which case the treatment provided in the first sentence above also would
not apply.
Gains or losses attributable to disposition of foreign currency or to
foreign currency contracts, or to fluctuations in exchange rates between
the time a Portfolio accrues income or receivables or expenses or other
liabilities denominated in a foreign currency and the time a Portfolio
actually collects such income or pays such liabilities, are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses, if
any, on the disposition of debt securities held by a Portfolio and
denominated in foreign currency are also treated as ordinary income or loss
to the extent such gains or losses are attributable to fluctuations in
exchange rates between the acquisition and disposition dates. These gains
and losses increase or decrease the amount of the Fund's net investment
income available for distribution rather than its net capital gains.
Forward currency contracts, options and futures contracts entered into by a
Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by a
Portfolio on forward currency contracts, options and futures contracts or
on the underlying securities. "Straddles" may also result in the loss of
the holding period of underlying securities for purposes of the 30% gross
income test described above, and therefore, a Portfolio's ability to enter
into forward currency contracts, options and futures contracts may be
limited.
Dividends paid from net investment income will generally be taxable to a
shareholder as ordinary income. Regardless of the length of time a
shareholder has held his shares, distributions designated as being from a
Fund's net long-term capital gains (i.e., the excess of net long-term
capital gains over net short-term capital losses) will be taxable as such.
Distributions in excess of a Fund's current and accumulated earnings and
profits will be treated as a tax-free return of capital to the extent of
the shareholder's basis in his shares and as a capital gain thereafter.
Foreign Taxes
As set forth in the Prospectus under "Taxation," the Funds are expected to
be subject to foreign withholding and other taxes with respect to income
received from sources within certain foreign countries. Each Fund (except
the Top 50 US) that is liable for foreign income taxes, including such
withholding taxes, expects to meet the requirements of the Code for
"passing through" to its shareholders the foreign taxes paid, but there can
be no assurance that it will be able to do so. Under the Code, if more than
50% of the value of a Portfolio's total assets at the close of any taxable
year consists of stock or securities of foreign corporations, its
corresponding Fund may elect to treat the proportionate share of foreign
income taxes paid by the Fund as paid directly by the Fund's shareholders.
If the Fund elects to pass through foreign taxes to the shareholders, no
deduction for such foreign taxes may be claimed by a shareholder who does
not itemize deductions and no deduction is available in computing an
individual shareholder's alternative minimum tax liability. A shareholder
who is a nonresident alien individual or a foreign corporation may be
subject to U.S. withholding tax on the income resulting from the election
described in this paragraph, but may not be able to claim a credit or
deduction against such U.S. tax for the foreign taxes treated as having
been paid by such shareholder. A tax-exempt shareholder will not ordinarily
benefit from this election. Shareholders who choose to utilize a credit
(rather than a deduction) for foreign taxes will be subject to the
limitation that the credit may not exceed the shareholder's U.S. tax
(determined without regard to the availability of the credit) attributable
to his or her total foreign source taxable income. For this purpose, the
portion of dividends and distributions paid by a Fund from its foreign
source net investment income will be treated as foreign source income. A
Portfolio's gains and losses from the sale of securities will generally be
treated as derived from U.S. sources and certain foreign currency gains and
losses likewise will be treated as derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign
source "passive income," such as the portion of dividends received from a
Portfolio that qualifies as foreign source income. In addition, the foreign
tax credit is allowed to offset only 90% of the alternative minimum tax
imposed on corporations and individuals. Because of these limitations, a
shareholder may be unable to claim a credit for the full amount of his
proportionate share of the foreign income taxes paid by a Portfolio.
Additionally, Congress has passed legislation under which the foreign tax
credit for taxes withheld with respect to dividends received by a Portfolio
would be disallowed if the Portfolio has not held the shares of the foreign
corporation for a 16-day period (or 46-day period in the case of preferred
shares) overlapping the dividend payment date and during which the
Portfolio is not protected from risk of loss. If the Fund elects to pass
through foreign taxes to the shareholders, the proposed legislation would
also deny such credit where the shareholder of the Fund does not satisfy
the above holding requirement with respect to its shares in the Fund. There
can be no assurances as to whether such legislation will be enacted into
law, and, if so, what its effective date might be.
The foregoing is only a general description of the foreign tax credit under
current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult
their own tax advisers.
State and Local Taxes
Each Fund may be subject to state or local taxes in jurisdictions in which
that Fund is deemed to be doing business. In addition, the treatment of a
Fund and its shareholders in those states that have income tax laws might
differ from treatment under the federal income tax laws. For example, a
portion of the dividends received by shareholders may be subject to state
income tax. Shareholders should consult their own tax advisors with respect
to any state or local taxes.
Foreign Shareholders
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses to a shareholder who, as to
the United States, is a non-resident alien individual, fiduciary of a
foreign trust or estate, foreign corporation or foreign partnership (a
"foreign shareholder") will be subject to U.S. withholding tax at the rate
of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case
the dividends will be subject to tax on a net income basis at the graduated
rates applicable to U.S. individuals or domestic corporations.
Distributions of net long-term capital gains to foreign shareholders will
not be subject to U.S. tax unless the distributions are effectively
connected with the shareholder's trade or business in the United States or,
in the case of a shareholder who is a non-resident alien individual, the
shareholder was present in the United States for more than 182 days during
the taxable year and certain other conditions are met.
In the case of a foreign shareholder who is a nonresident alien individual
and who is not otherwise subject to withholding as described above, a Fund
may be required to withhold U.S. federal income tax at the rate of 31%
unless IRS Form W-8 is provided. See "Taxation" in the Prospectus.
Transfers by gift of shares of a Fund by a foreign shareholder who is a
nonresident alien individual will not be subject to U.S. federal gift tax,
but the value of shares of the Fund held by such a shareholder at his or
her death will be includible in his or her gross estate for U.S. federal
estate tax purposes.
Reports to Shareholders
The Fund will make annual reports of the federal income tax status of
distributions to owners of shares. Such reports will set forth the dollar
amounts of dividends from net investment income and long-term capital gains
and, if the Fund elects to pass through foreign taxes, the shareholder's
portion of the foreign income taxes paid to each country and the portion of
the dividends that represents income derived from sources within each
country.
The foregoing discussion is based on U.S. federal tax laws in effect on the
date hereof. These laws are subject to change by legislative or
administrative action, possibly with retroactive effect.
The foregoing discussion is a summary only and is not intended as a
substitute for careful tax planning. Prospective investors in shares of a
Fund should consult their own tax advisers as to the tax consequences of
investing in such shares, including the consequences under state, local and
other tax laws.
Description of Shares
- --------------------------------------------------------------------------------
The Corporation is an open-end management investment company organized as a
Maryland corporation on May 22, 1997. The Articles of Incorporation currently
permit the Corporation to issue 12,500,000,000 shares of common stock, par value
$0.001 per share, of which 10,000,000 shares have been classified as shares of
each Fund. The Corporation currently consists of eleven such series and two
classes of shares for each Fund known as Class A shares and Class B shares.
Shareholders are entitled to one vote for each share held on matters on which
they are entitled to vote. Shareholders in the Corporation do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Corporation may elect all of the Directors of the
Corporation if they choose to do so and in such event the other shareholders in
the Corporation would not be able to elect any Director. The Corporation is not
required and has no current intention to hold meetings of shareholders annually,
but the Corporation will hold special meetings of shareholders when in the
judgment of the Corporation's Directors it is necessary or desirable to submit
matters for a shareholder vote. Shareholders have under certain circumstances
(e.g., upon application and submission of certain specified documents to the
Directors by a specified number of shareholders) the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Directors. Shareholders also have the right
to remove one or more Directors without a meeting by a declaration in writing by
a specified number of shareholders. Shares have no preference, pre-emptive,
conversion or similar rights (except the automatic conversion of Class B shares
into Class A shares as discussed in the Prospectus under "Purchase of Shares").
Shares, when issued, are fully paid and non-assessable.
Stock certificates are not issued by the Corporation except upon written
request. No certificates will be issued for fractional shares.
The Articles of Incorporation of the Corporation contain a provision permitted
under Maryland Corporation Law which under certain circumstances eliminates the
personal liability of the Corporation's Directors to the Corporation or its
shareholders.
The Articles of Incorporation and the By-Laws of the Corporation provide that
the Corporation indemnify the Directors and officers of the Corporation to the
full extent permitted by the Maryland Corporation Law, which permits
indemnification of such persons against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Corporation. However, nothing in the Articles of Incorporation
or the By-Laws of the Corporation protects or indemnifies a Director or officer
of the Corporation against any liability to the Corporation or its shareholders
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Interests in a Portfolio have no preference, preemptive, conversion or similar
rights and are fully paid and non-assessable. The Portfolio Trust is not
required to hold annual meetings of investors, but will hold special meetings of
investors when, in the judgment of its Trustees, it is necessary or desirable to
submit matters for an investor vote. Each investor is entitled to a vote in
proportion to the share of its investment in a Portfolio.
Additional Information
- --------------------------------------------------------------------------------
As used in this Statement of Additional Information and the Prospectuses, the
term "majority of the outstanding voting securities" (as defined in the 1940
Act) currently means the vote of (i) 67% or more of the outstanding voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or represented by proxy; or
(ii) more than 50% of the outstanding voting securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited financial
statements and annual reports containing financial statements audited by
independent auditors.
A shareholder's right to receive payment with respect to any redemption may be
suspended or the payment of the redemption proceeds postponed: (i) during
periods when the New York Stock Exchange or foreign stock exchange is closed for
other than weekends and holidays or when regular trading on such Exchange is
restricted as determined by the Securities and Exchange Commission by rule or
regulation, (ii) during periods in which an emergency exists which causes
disposal of, or evaluation of the net asset value of, portfolio securities to be
unreasonable or impracticable, or (iii) for such other periods as the SEC may
permit.
Telephone calls to any Fund, the Transfer Agent, the Distributor, or Financial
Intermediaries with respect to shareholder servicing may be tape recorded. With
respect to the securities offered hereby, this Statement of Additional
Information and the Prospectuses do not contain all the information included in
the Corporation's Registration Statement filed with the SEC under the 1933 Act
and the Corporation's and the Portfolio Trust's Registration Statement filed
under the 1940 Act. Pursuant to the rules and regulations of the SEC, certain
portions have been omitted. The Registration Statement including the exhibits
filed therewith may be examined at the office of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and the
Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
Appendix A
- -------------------------------------------------------------------------------
Funds and Corresponding Portfolios
The Corporation seeks to achieve the investment objective of each Fund by
investing all of the Fund's investable assets in the corresponding
non-diversified, open-end management investment company (each, a "Portfolio" and
collectively the "Portfolios") listed below:
Top 50 World--Top 50 World Portfolio (US Dollar), ("Top 50 World Portfolio")
Top 50 Europe--Top 50 Europe Portfolio (US Dollar), ("Top 50 Europe Portfolio")
Top 50 Asia--Top 50 Asia Portfolio (US Dollar), ("Top 50 Asia Portfolio")
Top 50 US--Top 50 US Portfolio (US Dollar), ("Top 50 US Portfolio"),
(collectively, the "Top 50 Funds"), (collectively, the "Top 50 Portfolios")
European Mid-Cap Fund--Provesta Portfolio (US Dollar), ("Provesta Portfolio")
German Equity Fund--Investa Portfolio (US Dollar), ("Investa Portfolio")
Japanese Equity Fund--Japanese Equity Portfolio (US Dollar), ("Japanese Equity
Portfolio"), (collectively with the Top 50 Funds, the "Equity Funds"),
(collectively with the Top 50 Portfolios, the "Equity Portfolios")
Global Bond Fund--Global Bond Portfolio (US Dollar), ("Global Bond Portfolio")
European Bond Fund--European Bond Portfolio (US Dollar), ("European Bond
Portfolio"), (collectively, the Bond Funds), (collectively, the Bond Portfolios)
Appendix B--Description of Security Ratings
- --------------------------------------------------------------------------------
Standard & Poor's Corporate and Municipal Bonds
AAA--Debt rated AAA has the highest ratings assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in a small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
Moody's Corporate and Municipal Bonds
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Deutsche Funds, Inc.
Statement of Assets & Liabilities
September 17, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche Deutsche Deutsche
Deutsche Deutsche Deutsche Deutsche European German Japanese Global European
Top 50 Top 50 Top 50 Top 50 Mid-Cap Equity Equity Bond Bond
World Europe Asia US Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in corresponding
Deutsche Portfolio $11,112 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111
Deferred organization
expenses (Note 1) 10,043 10,043 10,043 10,043 10,043 10,043 10,043 10,043 10,043
- ------------------------------------------------------------------------------------------------------------------------
Total Assets 21,155 21,154 21,154 21,154 21,154 21,154 21,154 21,154 21,154
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Organization expenses
payable 10,043 10,043 10,043 10,043 10,043 10,043 10,043 10,043 10,043
- ------------------------------------------------------------------------------------------------------------------------
Total Liabilities 10,043 10,043 10,043 10,043 10,043 10,043 10,043 10,043 10,043
- ------------------------------------------------------------------------------------------------------------------------
Net Assets $11,112 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111
========================================================================================================================
Shares outstanding
($.001 par value) 888.96 888.88 888.88 888.88 888.88 888.88 888.88 888.88 888.88
========================================================================================================================
Net Asset Value per share $ 12.50 $ 12.50 $ 12.50 $ 12.50 $ 12.50 $ 12.50 $ 12.50 $ 12.50 $ 12.50
========================================================================================================================
COMPOSITION OF NET ASSETS
Capital stock $ 1 $ 1 $ 1 $ 1 $ 1 $ 1 $ 1 $ 1 $ 1
Paid in capital 11,111 11,110 11,110 11,110 11,110 11,110 11,110 11,110 11,110
- ------------------------------------------------------------------------------------------------------------------------
Net Assets,
September 17, 1997 $11,112 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111
========================================================================================================================
</TABLE>
See Notes to Financial Statement.
- --------------------------------------------------------------------------------
Deutsche Funds, Inc.
Notes to Financial Statement
September 17, 1997
- --------------------------------------------------------------------------------
Note 1--General
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (each a "Fund" and collectively
the "Funds"). The accompanying financial statement and notes relate to nine of
these Funds which are: Deutsche Top 50 World; Deutsche Top 50 Europe; Deutsche
Top 50 Asia, Deutsche Top 50 US; Deutsche European Mid-Cap Fund; Deutsche German
Equity Fund and Deutsche Japanese Equity Fund (collectively, the "Equity
Funds"); and Deutsche Global Bond Fund and Deutsche European Bond Fund
(collectively, the "Bond Funds").
Each of the Funds will seek to achieve their respective investment objective by
investing substantially all of their assets in the corresponding portfolio of
Deutsche Portfolios (the "Portfolio Trust") having substantially the same
investment objective of each of the respective Funds. The Portfolio Trust is an
open-end management investment company and comprises ten portfolios (each a
"Portfolio").
The Company has not retained the services of an investment adviser since the
Funds will seek to achieve their investment objective by investing all of their
investable assets in their corresponding Portfolio of the Portfolio Trust. Each
Portfolio is managed by Deutsche Fund Management, Inc. ("DFM"), an indirect
subsidiary of Deutsche Bank AG. Federated Services Company intends to serve as
Administrator to the Funds and Federated Shareholder Services Company intends to
serve as transfer agent and dividend disbursing agent to the Funds. Edgewood
Services, Inc. ("Edgewood") intends to serve as distributor to the Funds (the
"Distributor").
Each Fund will absorb daily a pro-rata portion of its corresponding Portfolio's
income and expenses, including fees paid to DFM and the amortization of
organization expenses. Additionally, each Fund offers two classes of shares to
investors, Class A and Class B. Both Class A shares and Class B shares are
subject to a Service Plan and Class B shares are also subject to a Distribution
Plan. Each Class will bear its respective portion of the expenses under the
Service and Distribution Plan.
The Company has had no operations through September 17, 1997, other than those
relating to organizational matters and the sale of 888.88 Class A shares for
$11,111 by each Fund, except for Deutsche Top 50 World which sold 888.96 Class A
shares for $11,112, to Edgewood. Organization expenses incurred in connection
with the organization and initial registration of the Company will be paid
initially by DFM and reimbursed by the Funds. Such organization expenses have
been deferred and will be amortized ratably over a period of sixty months from
the commencement of operations of the Funds. The amount paid by each Fund on any
redemption by Edgewood (or any subsequent holder) of such Fund's initial shares
will be reduced by the pro-rata portion of any unamortized organization expenses
of the Funds.
Note 2--Commitments and Related Agreements
The Company intends to retain the services of Federated Services Company as
Administrator. Under the Administration Agreement, Federated Services Company
will assist in the operations of the Funds subject to the direction and control
of the Board of Directors of the Company. For its services, Federated Services
Company will receive a fee from each Fund, which is computed daily and paid
monthly, at an annual rate of 0.065% of the average daily net assets of each
Fund up to $200 million and 0.0525% of such assets in excess of $200 million for
the Fund's then current fiscal year. The Administrator will receive a minimum
fee of $75,000 per Fund annually after the second full year of the Company's
operations.
The Company intends to enter into a distribution agreement with Edgewood.
Edgewood will serve as principal distributor for shares of each Fund. The
Company intends to adopt a Service and Distribution Plan in accordance with Rule
12b-1 of the 1940 Act whereby Class B shares are subject to the Distribution
Plan and Class A shares and Class B shares are subject to the Service Plan.
Under the Distribution Plan, Class B shares of 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. Under the Service Plan, each Fund will pay 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.
Federated Shareholder Services Company will serve as the transfer agent and
dividend disbursing agent for each Fund. Federated Services Company and
Federated Shareholder Services Company are both affiliated with Edgewood
Services Inc. IBT Fund Services (Canada) Inc. will provide fund accounting
services to the Funds.
DFM has voluntarily 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 pro-rata portion of
expenses of the 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 daily net assets of Class A shares of the Equity Funds, the Class B
shares of the Equity Funds, the Class A shares of the Bond Funds and Class B
shares of the Bond Funds, respectively, with the exception of Deutsche Top 50 US
for which DFM has voluntarily agreed to maintain its expenses at 1.50% and 2.25%
of average daily net assets for Class A and Class B shares, respectively.
Report of Independent Accountants
- -------------------------------------------------------------------------------
To the Shareholder and Board
of Directors of Deutsche Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Deutsche Top 50
World, Deutsche Top 50 Europe, Deutsche Top 50 Asia, Deutsche Top 50 US,
Deutsche European Mid-Cap Fund, Deutsche German Equity Fund, Deutsche Japanese
Equity Fund, Deutsche Global Bond Fund and Deutsche European Bond Fund (nine of
eleven separate funds constituting Deutsche Funds, Inc., hereafter referred to
as the "Funds") at September 17, 1997, in conformity with generally accepted
accounting principles. This financial statement is the responsibility of the
Funds' management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this financial statement
in accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
September 19, 1997
Deutsche Portfolios
Statement of Assets & Liabilities
September 17, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Top 50 Top 50 Top 50 Top 50 Japanese Global European
World Europe Asia US Provesta Investa Equity Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
(US (US (US (US (US (US (US (US (US
Dollar) Dollar) Dollar) Dollar) Dollar) Dollar) Dollar) Dollar) Dollar)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash $11,114 $11,112 $11,112 $11,112 $11,112 $11,112 $11,112 $11,112 $11,112
Deferred organization
expenses (Note 1) 52,957 52,957 52,957 52,957 52,957 52,957 52,957 52,957 52,957
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets 64,071 64,069 64,069 64,069 64,069 64,069 64,069 64,069 64,069
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Organization expenses
payable 52,957 52,957 52,957 52,957 52,957 52,957 52,957 52,957 52,957
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 52,957 52,957 52,957 52,957 52,957 52,957 52,957 52,957 52,957
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets $11,114 $11,112 $11,112 $11,112 $11,112 $11,112 $11,112 $11,112 $11,112
================================================================================================================================
</TABLE>
See Notes to Financial Statement.
Deutsche Portfolios
Notes to Financial Statement
September 17, 1997
- --------------------------------------------------------------------------------
Note 1--General
Deutsche Portfolios ("Portfolio Trust") was organized on June 20, 1997, as a
business trust under the laws of the State of New York and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Portfolio Trust currently consists of ten
separate investment series (each a "Portfolio" and collectively the
"Portfolios"), each of which is, in effect, a separate mutual fund. The
accompanying financial statement and notes relate to nine of these Portfolios
which are Top 50 World Portfolio (US Dollar), Top 50 Europe Portfolio (US
Dollar), Top 50 Asia Portfolio (US Dollar), Top 50 US Portfolio (US Dollar),
Provesta Portfolio (US Dollar), Investa Portfolio (US Dollar) and Japanese
Equity Portfolio (US Dollar) (collectively, the "Equity Portfolios") and Global
Bond Portfolio (US Dollar) and European Bond Portfolio (US Dollar)
(collectively, the "Bond Portfolios").
Deutsche Fund Management, Inc. ("DFM"), an indirect subsidiary of Deutsche Bank
AG, intends to serve as investment manager (the "Manager") to the Portfolio
Trust. Investors Bank & Trust Company intends to serve as the custodian to the
Portfolio Trust. IBT Fund Services (Canada) Inc. intends to serve as the fund
accounting agent to the Portfolio Trust.
The Declaration of Trust of the Portfolios permits its Trustees to issue
interests in the Portfolio Trust. The Portfolios have had no operations through
September 17, 1997, other than those relating to organizational matters,
including the issuance of the following initial interests ("Initial Interests")
to Deutsche Funds, Inc. (the "Deutsche Funds") and Edgewood Services Inc.,
("Edgewood"), distributor of the Deutsche Funds:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Initial Interest Initial Interest
Portfolio to Deutsche Fund Amount to Edgewood Amount
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Top 50 World
Portfolio (US Dollar) Deutsche Top 50 World $11,112 Edgewood $2
Top 50 Europe
Portfolio (US Dollar) Deutsche Top 50 Europe $11,111 Edgewood $1
Top 50 Asia
Portfolio (US Dollar) Deutsche Top 50 Asia $11,111 Edgewood $1
Top 50 US
Portfolio (US Dollar) Deutsche Top 50 US $11,111 Edgewood $1
Provesta
Portfolio (US Dollar) Deutsche European Mid-Cap Fund $11,111 Edgewood $1
Investa
Portfolio (US Dollar) Deutsche German Equity Fund $11,111 Edgewood $1
Japanese Equity
Portfolio (US Dollar) Deutsche Japanese Equity Fund $11,111 Edgewood $1
Global Bond
Portfolio (US Dollar) Deutsche Global Bond Fund $11,111 Edgewood $1
European Bond
Portfolio (US Dollar) Deutsche European Bond Fund $11,111 Edgewood $1
</TABLE>
The investment objective of the Equity Portfolios is primarily to achieve high
capital appreciation, and as a secondary objective, reasonable dividend income.
The investment objective of the Bond Portfolios is to achieve steady, high
income.
Organization expenses incurred in connection with the organization and initial
registration of the Portfolio Trust will be paid initially by DFM and reimbursed
by the Portfolios. Such organization expenses have been deferred and will be
amortized ratably over a period of sixty months from the commencement of
operations of the Portfolios. Any amount received by the Portfolio from its
corresponding Fund as a result of a redemption by Edgewood of any of its Initial
Interest in the Portfolio will be applied so as to reduce the amount of
unamortized organization expenses. The amount paid by the Portfolio Trust on any
withdrawal by the Deutsche Funds of all or part of its Initial Interest in the
Portfolios will be reduced by a portion of any unamortized organization expenses
of the Portfolios, determined by the proportion of the amount of the Initial
Interest withdrawn to the aggregate amount of the Initial Interests in the
Portfolios then outstanding after taking into account any prior withdrawals of
any portion of the Initial Interests in the Portfolios.
Note 2--Commitments and Related Agreements
The Portfolio Trust intends to retain the services of DFM as Manager. DFM
retains overall responsibility for supervision of the investment management
program for each Portfolio but has delegated the day-to-day management of the
investment operations of each Portfolio to an Adviser. As compensation for the
services rendered by DFM under the investment management agreement ("Management
Agreement") with the Portfolio Trust with respect to each Portfolio, DFM
receives a fee from each Portfolio, which is computed daily and paid monthly,
equal to the following percentages of each Portfolio's average daily net assets
on an annualized basis for the Portfolio's then-current fiscal year:
Top 50 World Portfolio (US Dollar) 1.00% Top 50 Europe Portfolio
(US Dollar) 1.00% Top 50 Asia Portfolio (US Dollar) 1.00% Top 50
US Portfolio (US Dollar) 0.85% Provesta Portfolio (US Dollar)
0.85% Investa Portfolio (US Dollar) 0.85% Japanese Equity
Portfolio (US Dollar) 0.85% Global Bond Portfolio (US Dollar)
0.75% European Bond Portfolio (US Dollar) 0.75%
DFM has retained the services of DWS International Portfolio Management GmbH
("DWS") as investment adviser of the Portfolios other than the Top 50 US
Portfolio (US Dollar). Deutsche Morgan Grenfell Investment Management, Inc.
("DMGIM") is the investment adviser of the Top 50 US Portfolio (US Dollar). The
advisers are indirect subsidiaries of Deutsche Bank AG. As compensation for
their services DWS and DMGIM receive a fee paid from DFM which is based on the
average daily net assets of the applicable Portfolio.
The Portfolio Trust intends to retain Federated Services Company as Operations
Agent to the Portfolios. As Operations Agent of the Portfolios, Federated
Services Company will receive a fee from 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, subject to a
minimum fee of $60,000 per Portfolio annually. Additionally, Federated Services
Company will receive, in its capacity as Administrator and Transfer Agent of the
Deutsche Funds and as Operating Agent of the Portfolios, a minimum aggregate fee
from each Portfolio, its corresponding Fund and any other fund investing in each
Portfolio, taken together, of $75,000 for the first year of each Portfolio's
operations and $125,000 for the second year. Federated Services Company is
affiliated with Edgewood.
The Portfolio Trust intends to enter into an administrative agreement with IBT
Trust Company (Cayman) Ltd. ("IBT (Cayman)"). As Administrative Agent of the
Portfolios, IBT (Cayman) will receive a fee from each Portfolio, which is
computed daily and paid monthly, at the annual rate of $5,000 per each
Portfolio.
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Initial Interest Holders and Board
of Trustees of Deutsche Portfolios
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Top 50 World
Portfolio (US Dollar), Top 50 Europe Portfolio (US Dollar), Top 50 Asia
Portfolio (US Dollar), Top 50 US Portfolio (US Dollar), Provesta Portfolio (US
Dollar), Investa Portfolio (US Dollar), Japanese Equity Portfolio (US Dollar),
Global Bond Portfolio (US Dollar) and European Bond Portfolio (US Dollar) (nine
of ten separate portfolios constituting Deutsche Portfolios, hereafter referred
to as the "Portfolios") at September 17, 1997, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Portfolios' management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit of this
financial statement in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse
Price Waterhouse
Curacao, Netherlands Antilles
September 19, 1997
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by the
Corporation or the Distributor. The Prospectus and this Statement of Additional
Information do not constitute an offer by any Fund or by the Distributor to sell
or solicit any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Funds or the
Distributor to make such offer in such jurisdictions.
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the first Semi-Annual Report for Deutsche US Money
Market Fund.*
On the following pages you will find complete financial information concerning
your investment in Deutsche Funds. Also included is a list of fund holdings, and
the fund's financial statements.
Please note that this report covers the period from the date of initial public
investment in the fund through February 28, 1998.
We are very proud of the funds we offer. Managed by the award-winning
professionals at Deutsche Fund Management, Inc., our funds are poised to take
advantage of the dynamic changes occurring in European, Asian and U.S.
markets.** The Deutsche Funds seek to provide you with a variety of ways to
allocate assets within the international portion of your portfolio, while
seeking to enable you to minimize risks that sometimes may be associated with
international investing.
May I suggest that you take the time to review this report and familiarize
yourself with your fund's strategy and holdings. We believe that the true
measure of any fund's performance is over the longer term.
Thank you for selecting Deutsche Funds to pursue your financial goals. We are
committed to providing quality investment products, coupled with our further
commitment to the highest level of service possible.
Sincerely,
/s/ Brian Lee
Brian Lee
President
April 15, 1998
* Money market funds seek to maintain a stable net asset value of $1.00 per
share. There is no assurance that they will be able to do so. An investment in
the fund is not insured or guaranteed by the U.S. government.
** Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Funds, Inc.
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche
US Institutional US
Money Market Money Market
Fund Fund
(Class A) (Class Y)
------------ ----------------
<S> <C> <C>
Assets:
Investments in corresponding Deutsche Portfolios at value $ 100 $ 100
Cash 68,000 18,000
Deferred organization costs 6,294 6,294
------- -------
Total assets 74,394 24,394
------- -------
Liabilities:
Organization costs payable 6,294 6,294
------- -------
Total liabilities 6,294 6,294
------- -------
Net assets $68,100 $18,100
======= =======
Net Assets Consist of:
Capital Stock, $0.001 par value (authorized 10,000,000 shares per Fund) 68 18
Paid-in capital 68,032 18,082
------- -------
Net assets $68,100 $18,100
======= =======
Computation of Net Asset Value, Redemption Price and Offering Price Per Share:
Shares outstanding 68,100 18,100
======= =======
Net asset value, redemption price and offering price per share $1.00 $1.00
======= =======
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
Deutsche Funds, Inc.
For the period ended February 28, 1998(a) (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche
US Institutional US
Money Market Money Market
Fund Fund
(Class A) (Class Y)
------------- ----------------
<S> <C> <C>
Increase (Decrease) In Net Assets:
Operations--
Net investment income $ -- $ --
Net realized gain on investments -- --
Net change in unrealized appreciation on investments -- --
Net increase in net assets resulting from operations -- --
Capital Transactions--
Proceeds from contributions 68,000 18,000
Value of withdrawals -- --
------- -------
Net increase in net assets from capital transactions 68,000 18,000
------- -------
Total increase in net assets 68,000 18,000
Net Assets:
Beginning of period 100 100
------- -------
End of period $68,100 $18,100
------- -------
Capital Shares
Shares outstanding, beginning of period 100 100
Shares sold 68,000 18,000
Shares redeemed -- --
------- -------
Capital shares outstanding, end of period 68,100 18,100
======= =======
</TABLE>
(a) The Funds have not commenced investment operations.
The accompanying notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
For the period ended February 28, 1998(a) (unaudited)
Selected data for a share of common stock outstanding throughout the period.
<TABLE>
<CAPTION>
Deutsche Deutsche
US Institutional US
Money Market Money Market
Fund Fund
(Class A) (Class Y)
------------ ----------------
<S> <C> <C>
Net asset value at beginning of period $1.00 $1.00
Investment operations:
Net investment income -- --
Net realized and unrealized gain on investments -- --
----- -----
Increase from investment operations -- --
----- -----
Net asset value at end of period $1.00 $1.00
===== =====
Total Return -- --
Ratios and Supplemental Data
Net assets, end of period (000's) $ 68 $ 18
Ratio to average net assets -- --
Expenses -- --
Net investment income -- --
</TABLE>
(a) The Funds have not commenced investment operations. The accompanying notes
are an integral part of the Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Funds, Inc.
February 28, 1998 (unaudited)
Note 1 -- Organization
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (the "Funds"). The accompanying
financial statements and notes relate to the Deutsche US Money Market Fund and
Deutsche Institutional US Money Market Fund, (each a "Fund" and collectively the
"Money Market Funds") each of which is, in effect, a separate mutual fund. As of
February 28, 1998 the Funds have not commenced investment operations.
Each of the Money Market Funds seeks to achieve their respective investment
objective by investing substantially all of their assets in the US Money Market
Portfolio (US Dollar) (the "Portfolio", one of the ten portfolios constituting
the Deutsche Portfolios (the "Portfolio Trust")) having substantially the same
investment objective of each of the Money Market Funds.
The Company has not retained the services of an investment adviser since the
Money Market Funds will seek to achieve their investment objective by investing
all of their investable assets in the Portfolio. The Portfolio is managed by
Deutsche Fund Management, Inc. ("DFM"), an indirect subsidiary of Deutsche Bank
AG. Federated Services Company is the Administrator to the Money Market Funds
and Federated Shareholder Services Company is the transfer agent and dividend
disbursing agent to the Money Market Funds. Edgewood Services, Inc. ("Edgewood")
is the distributor to the Money Market Funds.
Each Fund will absorb daily a pro-rata portion of the Portfolio's income and
expenses, including fees paid to DFM and the amortization of organization
expenses. Additionally, the Deutsche US Money Market Fund offers two classes of
shares to investors, Class A and Class B. Both Class A Shares and Class B Shares
are subject to a Service Plan and Class B Shares are also subject to a
Distribution Plan. Each Class will bear their respective portion of the expenses
under the Service and Distribution Plan. As of February 28, 1998, only Class A
Shares of the Deutsche US Money Market Fund have been sold to the public, shares
of the Deutsche Institutional US Money Market Fund have not been sold to the
public.
Note 2 -- Significant Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies followed by the Funds:
Investment Valuation
The value of each Fund's investment in the Portfolio included in the
accompanying Statements of Assets and Liabilities reflects each Fund's
proportionate beneficial interest in the net assets of the Portfolio
(percentages as of February 28, 1998 are listed below). Valuation of securities
by the Portfolio is discussed in Note 2 of the Portfolios' Notes to Financial
Statements which are included elsewhere in this report.
<TABLE>
<CAPTION>
Fund Percentage Portfolio
- -------------------------------------------------------- ----------- -------------------------------------
<S> <C> <C>
Deutsche US Money Market Fund 47.62% US Money Market Portfolio (US Dollar)
Deutsche Institutional US Money Market Fund 47.62% US Money Market Portfolio (US Dollar)
</TABLE>
Investment Income, Expense and Realized Gains and Losses
The Money Market Funds record its share of the investment income, expense and
realized gains and losses recorded by the Portfolio on a daily basis. The
investment income, including accretion of discount and amortization of premium,
expenses and realized gains and losses are allocated daily to investors of the
Portfolio based upon the amount of their investment in the Portfolio.
Federal Income Taxes
Each Fund is treated as a separate entity for Federal income tax purposes. It is
the policy of each Fund to qualify for and elect treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, as amended.
Accordingly, each Fund would not be subject to U.S. federal income taxes to the
extent it distributes substantially all of its taxable income including any net
capital gains for each fiscal year. In addition, by distributing, during each
calendar year, substantially all of its net investment income and capital gains,
each Fund would not be subject to U.S. federal excise tax.
Distributions to Shareholders
All of the Money Market Funds' net income and short-term capital gains and
losses, if any, are declared as a dividend daily and paid monthly. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principals.
These differences, which could be temporary or permanent in nature, may result
in reclassification of distributions; however, net investment income, net
realized gains and net assets are not affected.
Deferred Organization Costs
Organization expenses incurred in connection with the organization and initial
registration of the Company will be paid initially by DFM and reimbursed by the
Funds. Such organization expenses have been deferred and will be amortized
ratably over a period of sixty months from the commencement of operations of the
Money Market Funds. The amount paid by each Fund on any redemption by Edgewood
(or any subsequent holder) of such Fund's initial shares will be reduced by the
pro-rata portion of any unamortized organization expenses of the Money Market
Funds.
Note 3 -- Significant Agreements and Transactions with Affiliates
The Company has retained the services of Federated Services Company as
Administrator. Under the Administration Agreement, Federated Services Company
will assist in the operations of the Money Market Funds subject to the direction
and control of the Board of Directors of the Company. For its services,
Federated Services Company will receive a fee from each Fund, which is computed
daily and paid monthly, at an annual rate of 0.045% of each Fund's average daily
net assets. If after the first year of operations of each Fund, the average net
assets of the Portfolio have not reached $325 million, the Administrator's fee
would be increased to an annual rate of 0.065% of the average daily net assets
of each Fund up to $200 million and 0.0525% of such assets in excess of $200
million for the Fund's then current fiscal year.
The Company has entered into a distribution agreement with Edgewood. Edgewood
will serve as principal distributor for shares of the Funds. The Company has
adopted a Service Plan in accordance with Rule 12b-1 of the 1940 Act whereby
Class A Shares are subject to the Service Plan. Under the Service Plan, the
Class A Shareholders pay DFM for the provision of certain services a fee
computed at an annual rate of 0.25% of the average daily net assets of the Class
A Shares.
Federated Shareholder Services Company serves as the transfer agent and dividend
disbursing agent for the Money Market Funds. Federated Services Company and
Federated Shareholder Services Company are both affiliated with Edgewood. IBT
Fund Services (Canada) Inc. provides fund accounting services to the Money
Market Funds.
DFM together with IBT Fund Services (Canada) Inc., its affiliates, and other
service providers have voluntarily agreed that they will waive their fees and/or
reimburse each Fund through at least one year from the Money Market Funds'
commencement of operations, to the extent necessary to maintain each Fund's
total operating expenses (which includes expenses of each Fund and its pro-rata
portion of expenses of the corresponding Portfolio, but does not cover
extraordinary expenses during the period) at not more than 0.20% of the average
daily net assets of Deutsche Institutional US Money Market Fund, and at not more
than 0.55% and 1.30% of the average daily net assets of Class A Shares and Class
B Shares, respectively, of the Deutsche US Money Market Fund.
STATEMENT OF ASSETS AND LIABILITIES
Deutsche Portfolios
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
US
Money Market
Portfolio
(US Dollar)
--------------
<S> <C>
Assets:
Cash $ 210
Deferred organization costs 65,912
-------
Total assets 66,122
-------
Liabilities:
Organization costs payable 65,912
-------
Total liabilities 65,912
-------
Net assets $ 210
=======
Net Assets:
Applicable to Investors' Beneficial Interests $ 210
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
Deutsche Portfolios
For the period ended February 28, 1998(a) (unaudited)
<TABLE>
<CAPTION>
US
Money Market
Portfolio
(US Dollar)
-------------
<S> <C>
Increase (Decrease) In Net Assets:
Operations--
Net investment income --
Net realized gain on investments --
Net change in unrealized appreciation on investments --
----
Net increase in net assets resulting from operations --
----
Capital Transactions--
Proceeds from contributions --
Value of withdrawals --
Net increase in net assets from capital transactions --
----
Total increase in net assets --
----
Net Assets:
Beginning of period 210
----
End of period $210
====
</TABLE>
(a) The Portfolio has not commenced investment operations.
The accompanying notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
Deutsche Portfolios
For the period ended February 28, 1998(a) (unaudited)
<TABLE>
<CAPTION>
US
Money Market
Portfolio
(US Dollar)
------------
<S> <C>
Ratios/Supplemental Data
Net assets, end of period $210
Ratio of expenses to average daily net assets --
Ratio of net investment income to average net assets --
</TABLE>
(a) The Portfolio has not commenced investment operations.
The accompanying notes are an integral part of the Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Portfolios
February 28, 1998 (unaudited)
Note 1 -- Organization
Deutsche Portfolios ("Portfolio Trust") was organized on June 20, 1997, as a
business trust under the laws of the State of New York and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Portfolio Trust currently consists of ten
separate investment series (the "Portfolios"), each of which is, in effect, a
separate mutual fund. The accompanying financial statements and notes relate to
the US Money Market Portfolio (US Dollar) (the "Portfolio").
Deutsche Fund Management, Inc. ("DFM"), an indirect subsidiary of Deutsche Bank
AG, serves as investment manager (the "Manager") to the Portfolio Trust.
Investors Bank & Trust Company serves as the custodian to the Portfolio Trust.
IBT Fund Services (Canada) Inc. serves as the fund accounting agent to the
Portfolio Trust.
The Declaration of Trust of the Portfolios permits its Trustees to issue
interests in the Portfolio Trust. The investment objective of the Portfolio is
primarily to achieve as high a level of current income as is consistent with the
preservation of capital and the maintenance of liquidity.
Note 2 -- Significant Accounting Policies
The preparation of financial statements in conformity with generally accounting
principles requires management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies followed by the Portfolio:
Security Valuation
Money market instruments are valued at amortized cost, which the Trustees have
determined in good faith to be fair value. The Portfolio's use of amortized cost
is subject to the Portfolio's compliance with certain conditions as specified
under Rule 2a-7 of the 1940 Act.
Investment Transactions
Investment transactions are recorded on trade date. Cost of securities sold is
calculated using identified cost method. Interest income, including the
amortization of premium and the accretion of discount is accrued daily.
Federal Income Taxes
Each Portfolio is considered a partnership under the U.S. Internal Revenue Code
(the "Code"). Each Portfolio therefore believes that it will not be subject to
any Federal income tax on its income and net realized gains (if any). However,
each investor in a Portfolio will be taxed on its allocable share of the
partnership's income and capital gains for purposes of determining its federal
tax liability. The determination of such share will be made in accordance with
the applicable sections of the Code. It is intended that each Portfolio's
assets, income and allocation will be managed in such a way that a regulated
investment company investing in a Portfolio will be able to satisfy the
requirements of Subchapter M of the Code, assuming that the investment company
invested all of its assets in the corresponding Portfolio.
Expenses
Expenses are recorded on an accrual basis. Expenses of the Portfolio Trust which
are directly identifiable to a specific Portfolio are allocated to that
Portfolio. Expenses not directly attributable to a specific Portfolio are
allocated among the Portfolios in such a manner as deemed equitable by the Board
of Trustees.
Deferred Organization Expenses
Organization expenses incurred in connection with the organization and initial
registration of the Portfolio Trust will be paid initially by DFM and reimbursed
by the Portfolios. Such organization expenses have been deferred and will be
amortized ratably over a period of sixty months from the commencement of
operations of the Portfolios. Any amount redeemed from the Portfolio from its
corresponding Fund as a result of a redemption by Edgewood Services Inc.,
distributor of the Deutsche Funds, Inc. of any of its Initial Interest in the
Portfolio will be applied so as to reduce the amount of unamortized organization
expenses. The amount paid by the Portfolio Trust on any withdrawal by the Money
Market Funds of all or part of its Initial Interest in the Portfolios will be
reduced by a portion of any unamortized organization expenses of the Portfolios,
determined by the proportion of the amount of the Initial Interest withdrawn to
the aggregate amount of the Initial Interests in the Portfolios then outstanding
after taking into account any prior withdrawals of any portion of the Initial
Interests in the Portfolios.
Note 3 -- Significant Agreements and Transactions with Affiliates
The Portfolio Trust has retained the services of DFM as Manager. DFM retains
overall responsibility for supervision of the investment management program for
the Portfolio but has delegated the day-to-day management of the investment
operations of the Portfolio to an Adviser. As compensation for the services
rendered by DFM under the investment management agreement ("Management
Agreement") with the Portfolio Trust with respect to the Portfolio, DFM receives
a fee from the Portfolio, which is computed daily and paid monthly, equal to
0.15% of the average daily net assets of the Portfolio on an annualized basis
for the Portfolio's then-current fiscal year. DFM has retained the services of
Deutsche Morgan Grenfell Investment Management, Inc. ("DMGIM") as the investment
adviser. The adviser is an indirect subsidiary of Deutsche Bank AG. As
compensation for its services DMGIM receives a fee paid from DFM which is based
on the average daily net assets of the Portfolio.
DFM has retained the services of Deutsche Morgan Grenfell Investment Management,
Inc. (DMGIM) as investment advisor of the Portfolio. DMGIM is an indirect
subsidiary of Deutsche Bank, AG. As compensation for its services DMGIM receives
a fee paid by DFM, which is based on average daily net assets of the portfolio.
The Portfolio Trust has retained Federated Services Company as Operations Agent
to the Portfolios. As Operations Agent of the Portfolios, Federated Services
Company receives a fee from the Portfolio, which is computed daily and paid
monthly, at the annual rate of 0.015% of the average daily net assets of the
Portfolio. If after the first year of operations, the average net assets of the
Portfolio have not reached $325 million, the Operations Agent's fee would be
increased to an annual rate of 0.035% of the average daily net assets of the
Portfolio. Federated Services Company is affiliated with Edgewood.
The Portfolio Trust has entered into an administrative agreement with IBT Trust
Company (Cayman) Ltd. ("IBT (Cayman)"). As Administrative Agent of the
Portfolios, IBT (Cayman) receives a fee from the Portfolio, which is computed
daily and paid monthly, at the annual rate of 0.025% of the average daily net
assets of the Portfolio.
TRUSTEES OFFICERS
Mutual funds are not deposits or obligations of any bank, are not guaranteed by
any bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal. Although money market funds seek to maintain a stable net
asset value of $1.00, there is no assurance that they will be able to do so.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the funds' prospectuses which contain facts
concerning their objective and policies, management fees, expenses and other
information.
Deutsche US Money Market Funds
Federated Investors Tower
Pittsburgh, PA 15222-3779
For information call toll-free 888-4-DEUTSCHE (888-433-8872)
The Deutsche US Money Market Fund (the "Class A and Class B Fund") and Deutsche
Institutional US Money Market Fund (the "Class Y Fund")(collectively, the
"Funds") are series of the Deutsche Funds, Inc., an open-end management
investment company organized as a Maryland corporation (the "Corporation"). The
Class A and Class B Fund offers two classes of shares. Class A shares are
offered at net asset value; Class B shares are designed primarily for temporary
investment as part of a special investment program in Class B shares of other
series of the Corporation (together with the Funds, the "Deutsche Funds"), and
unlike shares of most money market funds, are offered at net asset value, but
with a declining contingent deferred sales charge on redemptions made within six
years.
The objective of the Funds is to achieve as high a level of current income as is
consistent with the preservation of capital and the maintenance of liquidity.
Each Fund seeks to maintain a constant net asset value. There can be no
assurance that the investment objective of the Funds will be achieved or that
the net asset value per share will not vary.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, each Fund seeks to achieve its investment objective by investing
all of its investable assets in the US Money Market Portfolio (US Dollar) (the
"Portfolio"), a corresponding diversified open-end management investment
company. The Portfolio is a series of the Deutsche Portfolios (the "Portfolio
Trust") and has the same investment objective as the Funds. The Funds invest in
the Portfolio through the Hub and Spoke(R) master-feeder investment fund
structure. "Hub and Spoke(R)" is a registered service mark of Signature
Financial Group, Inc.
The Portfolio is managed by Deutsche Fund Management, Inc. ("DFM"), a registered
investment adviser and an indirect subsidiary of Deutsche Bank AG, a major
global financial institution.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Funds has been filed with
the Securities and Exchange Commission ("SEC") in a Statement of Additional
Information dated April 30, 1998 (as supplemented from time to time). This
information is incorporated herein by reference and is available without charge
from the Funds' Transfer Agent, Federated Shareholder Services Company, by
calling toll-free 888-4-DEUTSCHE.
INVESTMENTS IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, DEUTSCHE BANK AG OR ANY OTHER BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. THERE CAN BE NO ASSURANCE THAT
THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated April 30, 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Expense Summary........................................ 2
Financial Highlights................................... 3
The Funds.............................................. 4
Investment Objective, Policies and Restrictions........ 4
Loans of Portfolio Securities......................... 5
Reverse Repurchase Agreements......................... 5
Floating and Variable Rate Instruments................ 5
Investment Restrictions............................... 5
Fundamental Investment Restrictions................... 5
Non-Fundamental Investment Restrictions............... 6
Management of the Corporation and the Portfolio Trust.. 6
Manager............................................... 6
Adviser............................................... 6
Administrator......................................... 6
Operations Agent...................................... 7
Administrative Agent.................................. 7
Distributor........................................... 7
Transfer Agent, Custodian and Fund Accountant......... 7
Expenses.............................................. 8
Expenses of Class A Shares and Class B Shares......... 8
Portfolio Transactions................................ 8
Purchase of Shares..................................... 8
Purchasing Shares Through a Financial Intermediary.... 8
Purchasing Shares by Wire............................. 9
Purchasing Shares by Check............................ 9
Special Purchase Features.............................. 9
Systematic Investment Program......................... 9
Retirement Plans...................................... 9
Conversion of Class B Shares........................... 9
Exchange Privilege..................................... 9
Class A Shares........................................ 9
Class B Shares........................................ 9
Class Y Shares........................................ 9
Requirements for Exchange............................. 9
Tax Consequences...................................... 9
Making an Exchange.................................... 10
Telephone Instructions................................ 10
Redemption of Shares.................................. 10
Redeeming Shares Through a Financial Intermediary..... 10
Redeeming Shares by Telephone......................... 10
Redeeming Shares by Mail.............................. 10
Special Redemption Features............................ 10
Systematic Withdrawal Program......................... 10
Contingent Deferred Sales Charge....................... 11
Class A Shares........................................ 11
Class B Shares........................................ 11
Class A Shares and Class B Shares..................... 11
Elimination of Contingent Deferred Sales Charge....... 11
Account and Share Information.......................... 11
Certificates and Confirmations........................ 11
Accounts with Low Balances............................ 11
Dividends and Distributions............................ 11
Net Asset Value........................................ 12
Organization........................................... 12
Taxes.................................................. 13
Additional Information................................. 13
Appendix A............................................. 13
</TABLE>
- --------------------------------------------------------------------------------
EXPENSE SUMMARY
- --------------------------------------------------------------------------------
The following table summarizes estimated shareholder transaction and annual
operating expenses of the Funds and the allocable operating expenses of the
Portfolio. The Directors of the Corporation believe that the aggregate per share
expenses of each Fund and the allocable operating expenses of the Portfolio will
be approximately equal to and may be less than the expenses that the Fund would
incur if it retained the services of an investment adviser and invested its
assets directly in portfolio securities. Actual expenses may vary. A
hypothetical example based on the summary is also shown. For more information
concerning the expenses of each Fund and the Portfolio, see "Management of the
Corporation and the Portfolio Trust."
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
Class A Class B Class Y
------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)...... None None None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price).............................................. None None None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable).............................................. 0.00%(1) 5.00%(2) None
Redemption Fees (as a percentage of amount redeemed, if applicable)................ None None None
Exchange Fees...................................................................... None None None
</TABLE>
(1) Class A shares acquired upon the exchange of Class A shares of another
Deutsche Fund purchased without an initial sales charge either (i) based on
an initial investment of $1,000,000 or more or (ii) with proceeds of a
redemption of shares of an unaffiliated investment company purchased or
redeemed with a sales charge and not distributed by Edgewood, may be charged
a contingent deferred sales charge of 1.00% for redemptions made within one
full year of purchase. See "Contingent Deferred Sales Charge."
(2) In the first year declining to 1.00% in the sixth year and 0.00% thereafter.
Expense Table
Annual Operating Expenses (After Expense Reimbursement)
(As a percentage of projected average net assets)
<TABLE>
<CAPTION>
Class A Class B Class Y
------- ------- -------
<S> <C> <C> <C>
Advisory Fees........................................... 0.15% 0.15% 0.15%
12b-1 Fees.............................................. 0.25% 1.00% None
Other Expenses (after expense reimbursement)............ 0.15% 0.15% 0.05%
----- ----- -----
Total Operating Expenses (after expense reimbursement).. 0.55% 1.30% 0.20%
===== ===== =====
</TABLE>
Example
- --------------------------------------------------------------------------------
An investor would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2)redemption at the end of each time period:
<TABLE>
<CAPTION>
Class A Class B Class Y
------- ------- -------
<S> <C> <C> <C>
1 Year........................ $ 6 $63 $2
3 Years....................... $18 $71 $6
</TABLE>
An investor would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2)no redemption at the end of each time period:
<TABLE>
<CAPTION>
Class A Class B Class Y
------- ------- -------
<S> <C> <C> <C>
1 Year........................ $ 6 $13 $2
3 Years....................... $18 $41 $6
</TABLE>
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in a
Fund would bear. Wire transferred redemptions of less than $5,000 may be subject
to additional fees. The fees and expenses included in "Other Expenses" are
estimated for each Fund's first fiscal year and include (i) the fees paid to the
Administrator, Administrative Agent, Operations Agent, Transfer Agent, Fund
Accounting Agent and Custodian (as each are defined below), (ii) amortization of
organizational expenses, and (iii) other usual and customary expenses of each
Fund and the Portfolio. The Manager, Administrator, Operations Agent, Transfer
Agent, Administrative Agent, Fund Accounting Agent and Custodian have
voluntarily agreed to waive a portion of their respective fees and/or reimburse
expenses with respect to the Class Y Fund, for at least the first year
operations, to the extent necessary to maintain such Fund's ratio of total
operating expenses to average annual net assets at the level indicated above.
The Manager and the Adviser have voluntarily agreed to reimburse the Class A and
Class B Fund, for at least the first year of operations, to the extent necessary
to maintain the ratio of total operating expenses to average annual net assets
of the Class A shares and Class B shares at the respective levels indicated
above. Assuming no fee waivers or reimbursement of expenses, estimated "Other
Expenses" for Class A shares, Class B shares and the Class Y Fund for the Funds'
first fiscal year would be 0.20%, 0.20% and 0.12%, respectively, and "Total
Operating Expenses" would be 0.60%, 0.35% and 0.24%, respectively, of the
average daily net assets of the class or Fund. For a more detailed description
of contractual fee arrangements, including waivers and expense reimbursements,
see "Management of the Corporation and the Portfolio Trust" and "Expenses." In
connection with the above example, investors should note that $1,000 is less
than the minimum investment requirement for the Funds. See "Purchase of Shares."
Because the fees paid under the 12b-1 Plan of the Class A and Class B Fund are
charged against the assets of such Fund, long-term shareholders may indirectly
pay an amount that is more than the economic equivalent of the maximum front-end
sales charge that such Fund would be permitted to charge. The example is
hypothetical; it is included solely for illustrative purposes. It should not be
considered a representation of future performance; actual expenses may be more
or less than those shown.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Unaudited financial highlights for Class A shares and Class Y shares of the
Funds for the period from commencement of operations through February 28, 1998,
are incorporated herein by reference to the Semi-Annual Report and supplement to
the Prospectus dated April 30, 1998, which accompanies this Prospectus. The Fund
did not have any operations through February 28, 1998.
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FUNDS
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Each Fund is a diversified, open-end management investment company and is a
series of shares of common stock of the Deutsche Funds, Inc., a Maryland
corporation incorporated on May 22, 1997 (see "Organization"). The investment
objective of each Fund is to achieve as high a level of current income as is
consistent with the preservation of capital and the maintenance of liquidity.
Each Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio, which has the same investment objective as
the Funds. The Portfolio is an open-end management investment company and a
series of shares of beneficial interest in the Deutsche Portfolios, a trust
organized under the laws of the State of New York (see "Organization)."
Shares of the Funds are sold continuously by the Distributor. The Class A and
Class B Fund requires a minimum initial investment of $5,000. The minimum
subsequent investment for the Class A and Class B Fund is $500. The minimum
initial investment to purchase Class Y Fund shares is $5 million, unless: (a)
the investor has invested at least $5 million in the aggregate among any class
of shares of any Deutsche Fund; or (b) the investor has, in the opinion of the
Manager, adequate intent and availability of funds to reach a future level of
investment of $5 million among any class of shares of the Deutsche Funds. There
is no minimum for subsequent purchases in the Class Y Fund. See "Purchase of
Shares." If a shareholder reduces his or her investment in a Fund to less than
the applicable minimum investment, the investment is subject to mandatory
redemption. See "Account and Share Information--Accounts with Low Balances."
Proceeds from the sale of shares of each Fund are invested in the Portfolio,
which then invests its assets in accordance with its investment objective and
policies. DFM is the investment manager of the Portfolio (the "Manager").
Deutsche Morgan Grenfell Investment Management Inc. ("DMGIM") is the investment
adviser of the Portfolio. The Manager and the Adviser are indirect subsidiaries
of Deutsche Bank AG. Federated Services Company is the administrator of the
Funds (the "Administrator") and the operations agent of the Portfolio
("Operations Agent"). IBT Fund Services (Canada) Inc. ("IBT (Canada)") is the
fund accounting agent of the Funds and the Portfolio ("Fund Accounting Agent").
Federated Shareholder Services Company is the transfer agent and dividend
disbursing agent of the Funds ("Transfer Agent"). IBT Trust Company (Cayman)
Ltd. ("IBT (Cayman)") is the administrative agent of the Portfolio
("Administrative Agent"). Investors Bank & Trust Company ("IBT") is the
custodian of the Funds and the Portfolio ("Custodian"). The Board of Directors
of the Corporation and the Board of Trustees of the Portfolio Trust provide
broad supervision over the affairs of the Funds and of the Portfolio,
respectively. The Directors who are not "interested persons" of the Corporation
as defined in the Investment Company Act of 1940, as amended (the "1940
Act")(the "Independent Directors"), are the same as the Trustees who are not
"interested persons" of the Portfolio Trust as defined in the 1940 Act (the
"Independent Trustees"). A majority of the Corporation's Directors and the
Portfolio Trust's Trustees are not affiliated with the Manager, the Adviser or
the Distributor. For further information about the Directors of the Corporation
and the Trustees of the Portfolio Trust, see "Management of the Corporation and
the Portfolio Trust" herein and "Directors, Trustees, and Officers" in the
Statement of Additional Information.
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INVESTMENT OBJECTIVE, POLICIES
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AND RESTRICTIONS
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The investment objective of each Fund is to achieve as high a level of current
income as is consistent with the preservation of capital and the maintenance of
liquidity. The net asset value of each of the Funds' shares is expected to
remain constant at $1.00. However, a contingent deferred sales charge is imposed
under certain circumstances. There can be no assurance that the investment
objective of the Funds will be achieved or that the net asset value per share
will not vary.
Each Fund attempts to achieve its investment objective by investing all its
investable assets in the Portfolio, a series of the Portfolio Trust which has
the same investment objective as the Fund. Since the investment characteristics
and experience of the Funds will correspond directly with those of the
Portfolio, the discussion in this Prospectus focuses on the investments and
investment policies of the Portfolio. The policies employed by the Funds and the
Portfolio in their efforts to achieve this objective are described below.
Additional information about the investment policies of the Funds and the
Portfolio appears in the Statement of Additional Information under "Investment
Objectives and Policies." No Fund represents a complete investment program.
Investments for the Portfolio mature or are deemed to mature within 397 days (or
792 days in the case of U.S. Government securities) from the date of purchase
and the average maturity of the investments held by the Portfolio (on a
dollar-weighted basis) is 90 days or less. Currently, the Portfolio's investment
policy is to invest only in money market instruments, including securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
and bank obligations (such as certificates of deposit, fixed time deposits and
bankers' acceptances), commercial paper, repurchase agreements, when-issued and
delayed delivery securities, bonds issued by U.S. corporations and obligations
of certain supranational organizations and foreign governments and their
agencies and instrumentalities. (See Appendix A for more information.) The
Portfolio may also enter into reverse repurchase agreements. The Portfolio will
not invest more than 5% of its total assets in securities of a single issuer
other than U.S. Government securities. All of the assets of the Portfolio are
invested in securities which are rated within the highest rating category for
short-term debt obligations by at least two (unless only rated by one)
nationally recognized statistical rating organizations (e.g., Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P")) or, if
unrated, are of comparable quality as determined by or under the direction of
the Portfolio Trust's Board of Trustees.
Although the assets of the Portfolio are invested in high-quality, short-term
securities, the Portfolio is subject to interest rate risk and credit risk which
cause fluctuations in the amount of income accrued on the Portfolio's
investments and therefore in the daily dividend paid by the Funds and, in
extreme cases, could cause the net asset value per share of the Funds to deviate
from $1.00 per share. Interest rate risk refers to the price fluctuation of a
debt security in response to changes in interest rates. In general, short-term
securities have relatively small fluctuations in price in response to general
changes in interest rates. Credit risk refers to the likelihood that an issuer
will default on interest and principal payments. High-quality securities of
short maturities generally have relatively minimal credit risk.
Subject to the restriction on the Funds' and the Portfolio's investments in
securities that are not readily marketable (see "Non-Fundamental Investment
Restrictions"), the Portfolio may purchase restricted securities, including
securities eligible for resale under Rule 144A under the Securities Act of 1933
(the "Securities Act") and commercial paper issued in reliance upon the
exemption from registration in Section 4(2) of the Securities Act. Restricted
securities are securities subject to contractual or legal restrictions on
resale, such as those arising from an issuer's reliance upon certain exemptions
from registration under the Securities Act.
Loans of Portfolio Securities
Loans of portfolio securities up to 30% of the total value of the Portfolio are
permitted and may be entered into for not more than one year. These loans must
be secured continuously by cash or equivalent collateral or by an irrevocable
letter of credit in favor of the Portfolio at least equal at all times to 100%
of the market value of the securities loaned plus accrued income. By lending
securities, the Portfolio's income can be increased by its continuing to receive
income on the loaned securities as well as by the opportunity to receive
interest on the collateral. Any appreciation or depreciation in the market price
of the borrowed securities which occurs during the term of the loan inures to
the Portfolio and its investors.
Reverse Repurchase Agreements
Reverse repurchase agreements may be entered into only with a "primary dealer"
(as designated by the Federal Reserve Bank of New York) in U.S. Government
securities. This is an agreement in which the Portfolio agrees to repurchase
securities sold by it at a mutually agreed upon time and price. As such, it is
viewed as the borrowing of money for the Portfolio. Proceeds of borrowings under
reverse repurchase agreements are invested for the Portfolio. This is the
speculative factor known as "leverage." If interest rates rise during the term
of a reverse repurchase agreement utilized for leverage, the value of the
securities to be repurchased for the Portfolio as well as the value of
securities purchased with the proceeds will decline. In these circumstances, the
Portfolio's entering into reverse repurchase agreements may have a negative
impact on the ability to maintain the Funds' net asset value of $1.00 per share.
Proceeds of a reverse repurchase transaction are not invested for a period which
exceeds the duration of the reverse repurchase agreement. A reverse repurchase
agreement is not entered into for the Portfolio if, as a result, more than
one-third of the market value of the Portfolio's total assets, less liabilities
other than the obligations created by reverse repurchase agreements, is engaged
in reverse repurchase agreements. In the event that such agreements exceed, in
the aggregate, one-third of such market value, the amount of the Portfolio's
obligations created by reverse repurchase agreements is reduced within three
days thereafter (not including Sundays and holidays) or such longer period as
the Securities and Exchange Commission may prescribe, to an extent that such
obligations do not exceed, in the aggregate, one-third of the market value of
the Portfolio's assets, as defined above. A segregated account with the
Custodian is established and maintained for the Portfolio with liquid assets in
an amount at least equal to the Portfolio's purchase obligations under its
reverse repurchase agreements. Such a segregated account consists of liquid,
high grade debt securities marked to the market daily, with additional liquid
assets added when necessary to insure that at all times the value of such
account is equal to the purchase obligations.
Floating and Variable Rate Instruments
Certain of the obligations that the Portfolio may purchase have a floating or
variable rate of interest. Such obligations bear interest at rates that are not
fixed, but vary with changes in specified market rates or indices, such as the
Prime Rate, and at specified intervals. Certain of such obligations may carry a
demand feature that would permit the holder to tender them back to the issuer at
par value prior to maturity. The Portfolio will limit its purchase of floating
and variable rate obligations to those of the same quality as it otherwise is
allowed to purchase. The Adviser will monitor on an ongoing basis the ability of
an issuer of a demand instrument to pay principal and interest on demand. The
Portfolio's right to obtain payment at par on a demand instrument could be
affected by events occurring between the date the Portfolio elects to demand
payment and the date payment is due that may affect the ability of the issuer of
the instrument to make payment when due, except when such demand instruments
permit same day settlement. To facilitate settlement, these same day demand
instruments may be held in book-entry form at a bank other than the Custodian,
subject to a subcustodian agreement approved by the Portfolio Trust between that
bank and the Custodian.
To the extent that floating and variable rate instruments without demand
features are not readily marketable, they will be subject to the investment
restriction on the Portfolio's investment in securities that are not readily
marketable.
Investment Restrictions
The investment objective of each Fund and the Portfolio, together with the
fundamental investment restrictions described below and in the Statement of
Additional Information, except as noted, are deemed fundamental policies, i.e.,
they may be changed only with the approval of the holders of a majority of the
outstanding voting securities of the Fund and the Portfolio. Each Fund has the
same investment restrictions as the Portfolio, except that the Fund may invest
all of its investable assets in the Portfolio. References below to the
Portfolio's investment restrictions also include the Funds' investment
restrictions. Any other investment policies of the Portfolio and each Fund
described herein or in the Statement of Additional Information are not
fundamental and may be changed without shareholder approval.
Each Fund will comply with Rule 2a-7 under the 1940 Act, including the
eligibility, diversification, quality and maturity limitations imposed by the
Rule. A more detailed description of Rule 2a-7 is set forth in the Funds'
Statement of Additional Information under "Investment Objective and Policies."
Fundamental Investment Restrictions
Each Fund is classified as "diversified" under the 1940 Act, which means that at
least 75% of its total assets is represented by cash; securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities; and other
securities limited in respect of any one company to an amount no greater than 5%
of the Fund's total assets (other than securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities). As a matter of operating
policy, the foregoing fundamental policy would give the Portfolio the ability to
invest, with respect to 25% of its assets, more than 5% of its assets in any one
issuer only in the event that Rule 2a-7 is amended in the future.
The Portfolio may not purchase securities or other obligations of issuers
conducting their principal business activity in the same industry if its
investments in such industry would equal or exceed 25% of the value of the
Portfolio's total assets, except this limitation shall not apply to investments
in securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or certificates of deposit, bankers' acceptances or time
deposits.
Non-Fundamental Investment Restrictions
The Portfolio will not purchase more than 10% of the principal amount of all
outstanding debt obligations of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities). In
addition, except for the investment of all of each Fund's assets in the
Portfolio, not more than 10% of the net assets of a Fund or the Portfolio, as
the case may be, may be invested in securities that are subject to legal or
contractual restrictions on resale or in securities which are not readily
marketable, provided that there is no limitation with respect to or arising out
of investment in (a) securities that have legal or contractual restrictions on
resale but have a readily available market or (b) securities that are not
registered under the Securities Act but which can be sold to qualified
institutional buyers in accordance with Rule 144A under the Securities Act.
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see "Investment
Restrictions" in the Statement of Additional Information.
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MANAGEMENT OF THE CORPORATION
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AND THE PORTFOLIO TRUST
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The Board of Directors of the Corporation and the Board of Trustees of the
Portfolio Trust provide broad supervision over the affairs of each Fund and the
Portfolio, respectively. Each Fund has retained the services of Federated
Services Company as Administrator, Federated Shareholder Services Company as
Transfer Agent, IBT (Canada) as Fund Accounting Agent and IBT as Custodian but
has not retained the services of an investment manager or adviser since each
Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Portfolio has retained the services of
DFM as Manager, Federated Services Company as Operations Agent, IBT (Canada) as
Fund Accounting Agent, IBT (Cayman) as Administrative Agent and IBT as
Custodian. DFM has retained the services of DMGIM as Adviser of the Portfolio.
Manager
The Portfolio Trust has retained the services of DFM as investment manager to
the Portfolio. DFM, with principal offices at 31 West 52nd Street, New York, New
York 10019, is a Delaware corporation and registered investment adviser under
the Advisers Act of 1940.
DFM is a wholly-owned subsidiary of Deutsche Fonds Holding GmbH ("DFH"), a
company with limited liability organized under the laws of Germany and a
consolidated subsidiary of Deutsche Bank AG, a major global banking institution.
With total assets the equivalent of $582 billion and 76,100 employees as of the
year-ended 1997, Deutsche Bank AG is one of Europe's largest universal banks. It
is engaged in a wide range of financial services, including retail and
commercial banking, investment banking and insurance. Deutsche Bank AG's
creditworthiness ranks it among the most highly rated financial institutions in
the world. For example, Deutsche Bank AG has been rated AAA by S&P. Deutsche
Bank AG and its affiliates may have commercial lending relationships with
companies whose securities may be held by the Portfolio.
Subject to the overall supervision of the Portfolio Trust's Trustees, DFM is
responsible for the day-to-day investment decisions, the execution of portfolio
transactions and the general management of the Portfolio's investments and
provides certain supervisory services. Under its investment management agreement
with the Portfolio Trust (the "Management Agreement"), DFM is permitted, subject
to the approval of the Board of Trustees of the Portfolio Trust, to delegate to
a third party responsibility for management of the investment operations of the
Portfolio. DFM has delegated this responsibility to the Adviser. DFM retains
overall responsibility, however, for supervision of the investment management
program for the Portfolio. See "Manager" in the Statement of Additional
Information.
As compensation for the services rendered and related expenses borne by DFM
under the Management Agreement with the Portfolio Trust with respect to the
Portfolio, DFM receives a fee from the Portfolio, which is computed daily and
may be paid monthly, equal to 0.15% of the average daily net assets of the
Portfolio on an annualized basis for the Portfolio's then-current fiscal year.
DFM and the Adviser have agreed to reimburse certain expenses of the Class A and
Class B Fund, and, together with certain other service providers to the Class Y
Fund and the Portfolio, to waive and/or reimburse expenses of the Class Y Fund,
for at least one year from the respective Fund's commencement of operations. See
"Expenses."
Adviser
Pursuant to an investment advisory agreement ("Advisory Agreement") among DFM,
DWS International Portfolio Management GmbH and DMGIM, DMGIM provides investment
advice and portfolio management services to the Portfolio. Subject to the
overall supervision of DFM, the Adviser conducts the day-to-day investment
decisions of the Portfolio, arranges for the execution of portfolio transactions
and furnishes a continuous investment program for the Portfolio.
The Adviser is an SEC-registered investment adviser and an indirect subsidiary
of Deutsche Bank AG, a major German banking institution. The offices of the
Adviser are located at 31 West 52nd Street, New York, New York 10019.
For these services, the Adviser receives from DFM a fee, which is computed daily
and may be paid monthly, equal to 0.1125% of the average daily net assets of the
Portfolio on an annualized basis for the Portfolio's then-current fiscal year.
Administrator
Under a master agreement for administration services with the Corporation,
Federated Services Company serves as Administrator to the Funds. In connection
with its responsibilities as Administrator, Federated Services Company, among
other things (i) prepares, files and maintains the Funds' governing documents,
registration statements and regulatory documents; (ii) prepares and coordinates
the printing of publicly disseminated documents; (iii) monitors declaration and
payment of dividends and distributions; (iv) projects and reviews the Funds'
expenses; (v) performs internal audit examinations; (vi) prepares and
distributes materials to the Directors of the Corporation; (vii) coordinates the
activities of all service providers; (viii) monitors and supervises collection
of tax reclaims; and (ix) prepares shareholder meeting materials.
As Administrator, Federated Services Company receives a fee from each Fund,
which is computed daily and may be paid monthly, at an annual rate, for at least
the Fund's first year of operations, equal to 0.045% of the average daily net
assets of the Fund on an annualized basis for the Fund's then-current fiscal
year. If, after the Funds' first year of operations, the average net assets of
the Portfolio (excluding assets attributable to the Class Y Fund) have not
reached $325 million, the Administrator's fee would be increased to an annual
rate of 0.065% of the average daily net assets of each Fund up to $200 million
and 0.0525% of the average daily net assets of each Fund greater than $200
million. The Administrator has agreed, together with the Manager and the Adviser
and certain other service providers to the Class Y Fund and the Portfolio, to
waive a portion of their fees and/or reimburse expenses of the Fund under
certain circumstances for at least one year from the Fund's commencement of
investment operations. See "Expenses."
Operations Agent
Under an operations agency agreement with the Portfolio Trust, Federated
Services Company serves as Operations Agent to the Portfolio. In connection with
its responsibilities as Operations Agent, Federated Services Company, among
other things (i) prepares governing documents, registration statements and
regulatory filings; (ii) performs internal audit examinations; (iii)prepares
expense projections; (iv) prepares materials for the Trustees of the Portfolio
Trust; (v) coordinates the activities of all service providers; (vi)conducts
compliance training for the Adviser; (vii) prepares investor meeting materials;
and (viii) monitors and supervises collection of tax reclaims.
As Operations Agent of the Portfolio, Federated Services Company receives a fee
from the Portfolio, which is computed daily and paid monthly, at an annual rate,
for at least the Portfolio's first year of operations, equal to 0.015% of the
average daily net assets of the Portfolio. If, after the Portfolio's first year
of operations, the average net assets of the Portfolio (excluding assets
attributable to the Class Y Fund) have not reached $325 million, the Operations
Agent's fee would be increased to an annual rate of 0.035% of the average daily
net assets of the Portfolio. See "Expenses."
Administrative Agent
Under an administration agreement with the Portfolio Trust, IBT (Cayman)
provides certain services to the Portfolio, including (i) filing and maintaining
the governing documents, registration statements and other regulatory filings;
(ii) maintaining a telephone line; (iii) approving annual expense budgets; (iv)
authorizing expenses; (v) distributing materials to the Trustees of the
Portfolio Trust; (vi) authorizing dividend distributions; (vii) maintaining
books and records; (viii) filing tax returns; and (ix) maintaining the investor
register.
As Administrative Agent of the Portfolio, IBT (Cayman) receives a fee from the
Portfolio, which may be paid monthly, at the annual rate of $5,000.
Distributor
Edgewood serves as principal distributor for shares of each Fund. Edgewood is
located at 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-5829. It is a
New York corporation organized on October 26, 1993, and is the principal
distributor for a number of investment companies. Edgewood is a subsidiary of
Federated Investors and an affiliate of Federated Services Company.
Under a distribution and services plan adopted in accordance with Rule 12b-1 of
the 1940 Act, Class B shares are subject to a distribution plan (the
"Distribution Plan") and Class A shares and Class B shares are subject to a
service plan (the "Service Plan").
Under the Distribution Plan, Class B shares will pay a fee to the Distributor in
an amount computed at an annual rate of 0.75% of the average daily net assets of
the Fund represented by Class B shares to finance any activity which is
principally intended to result in the sale of Class B shares subject to the
Distribution Plan. Because distribution fees to be paid by a Fund to the
Distributor may not exceed an annual rate of 0.75% of Class B shares' average
daily net assets, it will take the Distributor a number of years to recoup the
expenses, including payments to other dealers, it has incurred for its sales
services and distribution-related support services pursuant to the Distribution
Plan.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the Distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the Distributor, including amounts expended
by the Distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the Distributor's overhead expenses. However, the Distributor may be able to
recover such amounts or may earn a profit from future payments made by shares
under the Distribution Plan.
Under the Service Plan, the Class A and Class B Fund pays to DFM for the
provision of certain services to the holders of Class A shares and Class B
shares a fee computed at an annual rate of 0.25% of the average daily net assets
of each such Class of shares. The services provided may include personal
services relating to shareholder accounts, such as answering shareholder
inquiries regarding the Fund, providing reports and other information to
shareholders and financial intermediaries ("Financial Intermediaries"), and
services related to the maintenance of shareholder accounts, and other services.
DFM determines the amounts to be paid to Financial Intermediaries, the schedules
of such fees and the basis upon which such fees will be paid. Securities laws
may require certain Financial Intermediaries such as depository institutions to
register as dealers.
DFM may pay Financial Intermediaries a shareholder services fee of up to 0.25%
of the amount invested in Class A and Class B shares by employees participating
in qualified or non-qualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or programs have a
minimum of 250 employees eligible for participation in such plans or programs,
or (ii) such plan's or program's aggregate investment in the Deutsche Funds or
certain other products made available by the Distributor to such plans or
programs is $1,000,000 or more ("Eligible Benefit Plans"). Shares in the
Deutsche Funds then held by Eligible Benefit Plans will be aggregated to
determine the fee payable. DFM reserves the right to cease paying these fees at
any time. DFM may pay such fees from its own funds in addition to amounts
received from the Funds under the Service Plan, including past profits or any
other source available to it. Such payments are subject to a reclaim from the
Financial Intermediary should the assets leave the plan or program within 12
months after purchase.
Furthermore, with respect to Class A shares and Class B shares, the Distributor
may offer to pay a fee from its own assets to Financial Intermediaries as
financial assistance for providing substantial sales services, distribution-
related support services, or shareholder services. The support may include
sponsoring sales, educational and training seminars for their employees,
providing sales literature, and engineering computer software programs that
emphasize the attributes of the Class A and Class B Fund. Such assistance may be
predicated upon the amount of shares the Financial Intermediary sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the Financial Intermediary.
Transfer Agent, Custodian and Fund Accountant
Federated Shareholder Services Company, Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779, serves as the transfer agent and dividend disbursing
agent for the Funds. IBT, 200 Clarendon Street, Boston, Massachusetts 02116 acts
as the custodian of the Funds' and the Portfolio's assets. Securities held for
the Portfolio may be held by a sub-custodian bank approved by the Trustees or
Custodian of the Portfolio Trust. IBT (Canada) provides fund accounting services
to the Funds and the Portfolio, including (i) calculation of the daily net asset
value for the Funds and the Portfolio; (ii) monitoring compliance with
investment portfolio restrictions, including all applicable federal securities
and other regulatory requirements; and (iii) monitoring the Funds' and
Portfolio's compliance with the requirements applicable to a regulated
investment company under the Internal Revenue Code (the "Code").
Expenses
In addition to the fees payable under the various agreements discussed above,
each Fund and the Portfolio are responsible for usual and customary expenses
associated with their respective operations. Such expenses may include
organization expenses, legal fees, audit fees and expenses, insurance costs, the
compensation and expenses of the Directors or Trustees, as the case may be,
registration fees under applicable securities laws, fund accounting fees,
custodian fees and extraordinary expenses. For each Fund, such expenses also
include transfer, registrar and dividend disbursing costs, and the expenses of
printing and mailing reports and notices and proxy statements to Fund
shareholders. For the Portfolio, such expenses also include brokerage expenses.
As discussed above, if, after the Portfolio's first year of operations, the
average net assets of the Portfolio have not reached $325 million, Federated
Services Company, as Administrator and Operations Agent to the Funds and the
Portfolio, respectively, may increase the annual rate of its asset-based fees.
See "Administrator" and "Operations Agent." In addition, in such circumstance
IBT and IBT (Canada), as Custodian and Fund Accounting Agent, respectively, to
the Funds and the Portfolio, may increase the asset-based fees charged to the
Portfolio. Such increase by the Custodian and Fund Accounting Agent could add
fees of as much as 0.015% per annum of the average annual assets of the Funds
and the Portfolio.
The Manager, Adviser, Administrator, Operations Agent, Administrative Agent,
Transfer Agent, Fund Accounting Agent and Custodian have voluntarily agreed to
waive a portion of their respective fees and/or reimburse expenses with respect
to the Class Y Fund, for at least the Fund's first year of operations, to the
extent necessary to maintain such Fund's ratio of total operating expenses to
average annual net assets at not more than 0.20%. The Manager and the Adviser
have agreed to reimburse the expenses of the Class A and Class B Fund, for at
least the Fund's first year of operations, to the extent necessary to maintain
the ratio of total operating expenses to average annual net assets of the Class
A shares and Class B shares at 0.55% and 1.30%, respectively. There can be no
assurance that the Manager or the other service providers will continue such fee
waivers or reimbursement beyond one year.
Expenses of Class A Shares and Class B Shares
Holders of Class A shares and Class B shares bear their allocable portion of the
Class A and Class B Fund's expenses along with their allocable share of the
Portfolio's operating expenses. At present, the only expenses which are
allocated specifically to Class A shares and Class B shares as classes are
expenses under the Distribution Plan and expenses under the Service Plan.
However, the Directors reserve the right to allocate certain other expenses to
holders of Class A shares and Class B shares ("Class Expenses"). In any case,
Class Expenses would be limited to: distribution fees; shareholder services
fees; transfer agent fees as identified by the Transfer Agent as attributable to
holders of Class A shares and Class B shares; printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders as attributable to holders of
Class A shares and Class B shares; registration fees paid to the Securities and
Exchange Commission and to state securities commissions as attributable to
holders of Class A shares and Class B shares; expenses related to administrative
personnel and services as required to support holders of Class A shares and
Class B shares; legal fees relating solely to Class A shares and Class B shares;
and Directors' fees incurred as a result of issues related solely to Class A
shares and Class B shares.
Portfolio Transactions
Although the Portfolio generally holds investments until maturity and does not
seek profits through short-term trading, it may dispose of any portfolio
security prior to its maturity if it believes such disposition advisable. Money
market securities are generally traded on a net basis and do not normally
involve brokerage commissions or transfer taxes. See "Portfolio Transactions" in
the Statement of Additional Information.
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PURCHASE OF SHARES
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Shares of the Funds are sold on days on which the New York Stock Exchange and
Federal Reserve Bank are open. Shares of each Fund may be purchased as described
below either through a Financial Intermediary (such as a bank or broker/dealer
which has a sales agreement with the Distributor) or by sending a wire or a
check directly to a Fund, with a minimum initial investment of $5,000 for the
Class A and Class B Fund; or $5 million for the Class Y Fund, unless: (a) the
investor has invested at least $5 million in the aggregate among any class of
shares of any Deutsche Fund; or (b) the investor has, in the opinion of the
Manager, adequate intent and availability of funds to reach a future level of
investment of $5 million among any class of shares of Deutsche Funds. Additional
investments in the Class A and Class B Fund can be made for as little as $500.
There is no minimum for subsequent purchases in the Class Y Fund. The minimum
initial investments for retirement plan participants is $1,000 and the
subsequent investment for retirement plan participants is $100. (Financial
Intermediaries may impose different minimum investment requirements on their
customers and may separately charge a fee for Fund transactions.) Class B shares
may be purchased, without an initial sales charge but subject to a contingent
deferred sales charge (see "Contingent Deferred Sales Charge"), only upon an
exchange of Class B shares of another Deutsche Fund.
In connection with any sale, the Distributor may from time to time offer certain
items of nominal value to any shareholder or investor. The Funds reserves the
right to reject any purchase request. An account must be established through a
Financial Intermediary or by completing, signing, and returning the new account
form available from the Funds before shares can be purchased.
Purchasing Shares Through a Financial Intermediary
An investor may call a Financial Intermediary (such as a bank or an investment
dealer, which has a sales agreement with the Distributor) to place an order to
purchase shares. Orders placed through a Financial Intermediary are considered
received when the Fund is notified of the purchase order. Shares are purchased
at a price equal to their net asset value next determined after receipt of the
purchase order. Purchase orders must be received by the Funds before 3:00 p.m.
(U.S. Eastern time) in order for the purchased shares to be entitled to
dividends declared that day. It is the Financial Intermediary's responsibility
to transmit orders promptly.
The Financial Intermediary which maintains investor accounts in Class B shares
with the Class A and Class B Fund must do so on a fully disclosed basis unless
it accounts for share ownership periods used in calculating the contingent
deferred sales charge (see "Contingent Deferred Sales Charge").
Purchasing Shares by Wire
Once an account has been established, shares may be purchased by Federal Reserve
wire by calling the Transfer Agent before 3:00 p.m. (U.S. Eastern time). Payment
by federal funds must be received before 4:00 p.m. (U.S. Eastern time) in order
to begin earning dividends that same day. All information needed will be taken
over the telephone, and the order is considered received when IBT receives
payment by wire. Federal funds should be wired as follows: Investors Bank &
Trust, Boston, MA: ABA Number 0110-0143-8; BFN Account Number 570000307; For
Credit to: (Fund Name) (Fund Class); (Fund Number, this number can be found on
the account statement or by contacting the Funds); Account Number; Trade Date
and Order Number; Group Number or Dealer Number; Nominee or Institution Name;
and ABA Number [#]. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to your
account representative at the telephone number listed on your account statement.
Purchasing Shares by Check
Once an account has been established, shares may be purchased by sending a check
made payable to the name of the specific Fund (designate class of shares and
account number) to: Deutsche Funds, Inc., P.O. Box 8612, Boston, MA 02266-8612.
Please include an account number on the check. Orders by mail are considered
received when payment by check is converted into federal funds (normally the
business day after the check is received).
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SPECIAL PURCHASE FEATURES
- --------------------------------------------------------------------------------
Systematic Investment Program
Once an account has been opened with the minimum initial investment,
shareholders of Class A shares may add to their investment on a regular basis in
a minimum amount of $100. Under this program, funds may be automatically
withdrawn periodically from the shareholder's checking account at an Automated
Clearing House ("ACH") member and invested in the Fund at the net asset value
next determined after an order is received by the Fund. Shareholders should
contact their Financial Intermediary or the Fund directly to participate in this
program.
Retirement Plans
Class A and Class B Fund shares can be purchased as an investment for retirement
plans or IRA accounts. For further details, contact the Funds and consult a tax
adviser.
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CONVERSION OF CLASS B SHARES
- --------------------------------------------------------------------------------
Class B shares will automatically convert into Class A shares on or about the
fifteenth of the month eight full years after the initial purchase date in any
one Deutsche Fund. Until conversion, Class B shares will have a higher expense
ratio and pay lower dividends than Class A shares due to the higher 12b-1 fees.
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EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Class A Shares
Class A shareholders may exchange all or some of their shares for Class A shares
of other Deutsche Funds at relative net asset value plus a sales charge to the
extent required by that Deutsche Fund. Sales charges will not be imposed to the
extent the exchange is made with proceeds from the previous redemption of Class
A shares of another Deutsche Fund that imposed a sales charge on the initial
purchase. None of the Deutsche Funds imposes any additional fees on exchanges.
However, Class A shares acquired upon the exchange of Class A shares of another
Deutsche Fund purchased without an initial sales charge (i) based on an initial
investment of $1,000,000 or more or (ii) with proceeds of a redemption of shares
of an unaffiliated investment company purchased or redeemed with a sales charge
and not distributed by Edgewood may be charged a contingent deferred sales
charge of 1.00% for redemptions made within one full year of the original
purchase.
Class B Shares
Class B shareholders may exchange all or some of their shares for Class B shares
of other Deutsche Funds. Contact your Financial Intermediary regarding the
availability of other Class B shares in the Deutsche Funds. Exchanges are made
at net asset value without being assessed a contingent deferred sales charge on
the exchanged shares. To the extent that a shareholder exchanges shares for
Class B shares of other Deutsche Funds, the time for which exchanged-from shares
were held will be credited against the time for which the exchanged-for shares
are required to be held for purposes of satisfying the applicable holding period
in respect of the contingent deferred sales charge. For more information, see
"Contingent Deferred Sales Charge."
Class Y Shares
Class Y shareholders have no exchange privileges.
Please contact your Financial Intermediary directly or the Distributor for
information on and prospectuses for the Deutsche Funds into which your shares
may be exchanged free of charge.
Requirements for Exchange
Shareholders using this privilege must exchange shares having a net asset value
equal to the minimum investment requirements of the Deutsche Fund into which the
exchange is being made. The shareholder must receive a Prospectus of the
Deutsche Fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
proceeds invested in the same class of shares of the other Fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified in advance of the modification or termination of the exchange
privilege.
Tax Consequences
An exchange will be treated as a taxable sale for federal income tax purposes
and any gain or loss realized will be subject to the rules applicable to
reinvestments (described above under "Tax Treatment of Reinvestments"). See
"Taxes" below for additional information.
Making an Exchange
Instructions for exchanging may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Class A and
Class B Fund may have difficulty in making exchanges by telephone through
brokers and other Financial Intermediaries during times of drastic economic or
market changes. If a shareholder cannot contact a broker or Financial
Intermediary by telephone, it is recommended that an exchange request be made in
writing and sent by overnight mail to: Deutsche Funds, Inc., c/o Federated
Shareholder Services Company, 1099 Hingham Street, Rockland, MA 02370-3317.
Telephone Instructions
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the
Funds. If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Funds. If reasonable procedures
are not followed, the responsible party may be liable for losses due to
unauthorized or fraudulent telephone instructions. Shares may be exchanged
between two Funds by telephone only if the two Deutsche Funds have identical
shareholder registrations.
Any shares held in certificated form cannot be exchanged by telephone but must
be forwarded to Federated Shareholder Services Company and deposited to the
shareholder's account before being exchanged. Telephone exchange instructions
are recorded and will be binding upon the shareholder. Such instructions will be
processed as of 2:00 p.m. (U.S. Eastern time) and must be received by the Fund
before that time for shares to be exchanged the same day. Shareholders
exchanging into the Class A and Class B Fund will begin receiving dividends the
following business day. This privilege may be modified or terminated at any
time.
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REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value, next determined after a Fund
receives the redemption request, less any applicable contingent deferred sales
charge. Redemptions will be made on days on which each Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
as described below.
Redeeming Shares Through a Financial Intermediary
Shares of the Funds may be redeemed by calling your Financial Intermediary to
request the redemption. Shares will be redeemed at the net asset value next
determined after a Fund receives the redemption request from the Financial
Intermediary, less any applicable contingent deferred sales charge. The
Financial Intermediary is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary fees
and commissions may be charged by the Financial Intermediary for this service.
Redemption requests must be received by the Fund before 2:00 p.m. (U.S. Eastern
time) in order for redemption proceeds to be disbursed the same day.
Redeeming Shares by Telephone
Shares may be redeemed in any amount by calling a Fund provided the Fund has
received a properly completed authorization form. These forms can be obtained
from the Transfer Agent. Proceeds will be mailed in the form of a check, to the
shareholder's address of record or by wire transfer to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
Wire transfer requests received before 2:00 p.m. (U.S. Eastern time) will be
processed the same day, but will not include that day's dividend. Wire transfer
requests received after that time will be processed the following business day,
but will include that day's dividend. The minimum amount for a wire transfer is
$1,000. Proceeds from redeemed shares purchased by check or through ACH will not
be wired until the payment has cleared. Proceeds from redemption requests
received on holidays when wire transfers are restricted will be wired the
following business day.
Telephone instructions will be recorded. If reasonable procedures are not
followed by a Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, redemption by mail (see "Redeeming Shares by Mail") should be
considered. If at any time a Fund shall determine it necessary to terminate or
modify the telephone redemption privilege, shareholders would be promptly
notified.
Redeeming Shares by Mail
Shares may be redeemed in any amount by mailing a written request to: Deutsche
Funds, Inc., c/o Federated Shareholder Services Company, P.O. Box 8612, Boston,
MA 02266-8612. If share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: Fund Name and the share Class name; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days after receipt of a proper written redemption request. Dividends are
paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with a Fund, or a redemption payable other than to the
shareholder of record, must have their signatures guaranteed by a commercial or
savings bank, trust company or savings association whose deposits are insured by
an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined by the Securities and Exchange Act of 1934,
as amended. The Funds do not accept signatures guaranteed by a notary public.
The Funds and the Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. The Funds may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Funds and the Transfer Agent reserve the right
to amend these standards at any time without notice.
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SPECIAL REDEMPTION FEATURES
- --------------------------------------------------------------------------------
Systematic Withdrawal Program
The Systematic Withdrawal Program permits the Class A and Class B Fund
shareholders to receive payments of a predetermined amount from accounts with a
$10,000 minimum at the time the shareholder elects to participate in the
Systematic Withdrawal Program. Under this program, shares are redeemed to
provide for periodic withdrawal payments in an amount directed by the
shareholder.
Depending upon the amount of the withdrawal payments, redemptions may reduce,
and eventually deplete, the shareholder's investment in the Fund. For this
reason, payments under this program should not be considered as yield or income
on the shareholder's investment in the Fund. A shareholder may apply for
participation in this program through such shareholder's Financial Intermediary.
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CONTINGENT DEFERRED SALES CHARGE
- --------------------------------------------------------------------------------
Shareholders may be subject to a contingent deferred sales charge upon
redemption of their shares under the following circumstances:
Class A Shares
No initial sales charge applies, but a contingent deferred sales charge of 1% is
imposed on certain redemptions of shares issued in exchange for Class A shares
of another Deutsche Fund within one year of the original purchase. See "Exchange
Privilege." Any applicable contingent deferred sales charge will be imposed on
the lesser of the net asset value of the shares of the exchanged-from Deutsche
Fund at the time of purchase or the net asset value of the redeemed shares at
the time of redemption.
Class B Shares
Shareholders redeeming Class B shares from their Fund accounts within six full
years of the purchase date of the Class B shares originally purchased in the
Deutsche Fund from which the shareholder exchanged will be charged a contingent
deferred sales charge by the Distributor. Any applicable contingent deferred
sales charge will be imposed on the lesser of (i) the net asset value of the
Class B shares of the exchanged-from Deutsche Fund, at the time of their
original purchase or (ii) the net asset value of the redeemed shares at the time
of redemption.
Class A Shares and Class B Shares
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
Distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) shares held for more than six
full years from the date of purchase with respect to Class B shares and one full
year from the date of purchase with respect to applicable Class A shares.
Redemptions will be processed in a manner intended to maximize the amount of
redemption which will not be subject to a contingent deferred sales charge. In
computing the amount of the applicable contingent deferred sales charge,
redemptions are deemed to have occurred in the following order: (1) shares
acquired through the reinvestment of dividends and long-term capital gains; (2)
shares held for more than six full years from the date of purchase with respect
to Class B shares and one full year from the date of purchase with respect to
applicable Class A shares; (3) shares held for fewer than six years with respect
to Class B shares and one full year from the date of purchase with respect to
applicable Class A shares on a first-in, first-out basis. A contingent deferred
sales charge is not assessed in connection with an exchange of Fund shares for
shares of other funds in the Deutsche Funds of the same class (see "Exchange
Privilege"). Any contingent deferred sales charge imposed at the time the Fund
shares issued in an exchange from another Deutsche Fund are redeemed is
calculated as if the shareholder had held the shares from the date on which such
shareholder became a shareholder of the exchanged-from shares. Moreover, the
contingent deferred sales charge will be eliminated with respect to certain
redemptions (see "Contingent Deferred Sales Charge--Elimination of Contingent
Deferred Sales Charge").
Elimination of Contingent Deferred Sales Charge
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Code, of a shareholder; (2) redemptions
representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70/1/U\\2; and (3) involuntary redemptions by the Fund of shares in shareholder
accounts that do not comply with the minimum balance requirements. No contingent
deferred sales charge will be imposed on redemptions of shares held by
Directors, employees and sales representatives of the Corporation, Trustees or
employees of the Portfolio Trust, the distributor, or affiliates of the Funds or
distributor; employees of any Financial Intermediary that sells shares of the
Funds pursuant to a sales agreement with the Distributor; and spouses and
children under the age of 21 of the aforementioned persons. Finally, no
contingent deferred sales charge will be imposed on the redemption of shares
originally purchased through a bank trust department, an investment adviser
registered under the Investment Advisers Act of 1940, or retirement plans where
the third party administrator has entered into certain arrangements with the
Distributor or its affiliates, or any other Financial Intermediary, to the
extent that no payments were advanced for purchases made through such entities.
The Directors reserve the right to discontinue elimination of the contingent
deferred sales charge. Shareholders will be notified of such elimination. Any
shares purchased prior to the termination of such waiver would have the
contingent deferred sales charge eliminated as provided in the Funds' Prospectus
at the time of the purchase of the shares. If a shareholder making a redemption
qualifies for an elimination of the contingent deferred sales charge, the
shareholder must notify the Distributor or the transfer agent in writing that
such shareholder is entitled to such elimination.
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ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
Certificates and Confirmations
As transfer agent for the Funds, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested in writing to Federated Shareholder Services Company. No
certificates will be issued for fractional shares.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
Accounts with Low Balances
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
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DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
All the Funds' net income and short-term capital gains and losses, if any, are
declared as a dividend daily and paid monthly. All shareholders on the record
date are entitled to dividends and distributions.
Dividends and distributions paid by a Fund are automatically reinvested in
additional shares of that Fund at net asset value with no sales charge unless
the shareholder has elected to have them paid in cash. Dividends and
distributions to be paid in cash are mailed by check in accordance with the
customer's instructions. The Funds reserve the right to discontinue, alter or
limit the automatic reinvestment privilege at any time.
U.S. federal regulations require that a shareholder provide a certified taxpayer
identification number ("TIN") upon opening an account. A TIN is either the
Social Security number or employer identification number of the record owner of
the account. Failure to furnish a certified TIN to a Fund could subject a
shareholder to a $50 penalty which will be imposed by the Internal Revenue
Service ("IRS") on the Fund and passed on by the Fund to the shareholder. With
respect to individual investors and certain non-qualified retirement plans, U.S.
federal regulations generally require the Funds to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of any dividends and
distributions (including the proceeds of any redemption) payable to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct, or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on a
federal income tax return. Furthermore, the IRS may notify the Funds to
institute backup withholding if the IRS determines a shareholder's TIN is
incorrect. Backup withholding is not an additional tax; amounts withheld may be
credited against the shareholder's U.S. federal income tax liability.
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for shares of each class of the Class A and Class B Fund and
the Class Y Fund is determined by subtracting from the value of each Fund's and
Class' total assets (i.e., the value of its investment in the Portfolio and
other assets) the amount of its pro rata share liabilities, including expenses
payable or accrued, and dividing the difference by the number of shares of each
share class or Fund outstanding at the time the determination is made. It is
anticipated that the net asset value per share of each Fund will remain constant
at $1.00. No assurance can be given that this goal can be achieved.
Each Fund computes its net asset value once daily at 3:00 p.m. (U.S. Eastern
time) on Monday through Friday, except on the holidays listed under "Net Asset
Value" in the Statement of Additional Information.
The Portfolio's assets are valued by using the amortized cost method of
valuation. This method involves valuing a security at its cost at the time of
purchase and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. The market value of the securities held by
the Portfolio fluctuates on the basis of the creditworthiness of the issuers of
such securities and on the levels of interest rates generally. While the
amortized cost method provides certainty in valuation, it may result in periods
when the value so determined is higher or lower than the price the Portfolio
would receive if the security were sold. (See "Net Asset Value" in the Statement
of Additional Information.)
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ORGANIZATION
- --------------------------------------------------------------------------------
The Corporation is an open-end management investment company organized on May
22, 1997, as a corporation under the laws of the State of Maryland. Its offices
are located at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779;
its telephone number is 888-4-DEUTSCHE.
The Articles of Incorporation currently permit the Corporation to issue
17,500,000,000 shares of common stock, par value $0.001 per share, of which
5,000,000,000 shares have been classified as shares of Deutsche US Money Market
Fund and 10,000,000,000 shares have been classified as shares of Deutsche
Institutional US Money Market Fund. The Board of Directors of the Corporation
may increase the number of shares the Corporation is authorized to issue without
the approval of shareholders. The Board of Directors of the Corporation also has
the power to designate one or more additional series of shares of common stock
and to classify and reclassify any unissued shares with respect to such series.
Currently there are 11 such series and two classes of shares for each series
except the Class Y Fund, which has only one class of shares.
Each share of a Fund or Class shall have equal rights with each other share of
the Fund or Class with respect to the assets of the Corporation pertaining to
the Fund or Class. Upon liquidation of a Fund, shareholders of each Class are
entitled to share pro rata in the net assets of the Fund available for
distribution to their Class.
Shareholders of each Fund are entitled to one vote for each full share held and
to a fractional vote for fractional shares. Shareholders in each Fund generally
vote in the aggregate and not by class, unless the law expressly requires
otherwise or the Directors determine that the matter to be voted upon affects
only the interests of shareholders of a particular Fund or class of shares. The
voting rights of shareholders are not cumulative. Shares have no preemptive or
conversion rights (other than the automatic conversion of Class B shares into
Class A shares as described under "Purchase of Shares--Conversion of Class B
Shares"). The rights of redemption are described elsewhere herein. Shares are
fully paid and nonassessable by the Corporation. It is the intention of the
Corporation not to hold meetings of shareholders annually. The Directors of the
Corporation may call meetings of shareholders for action by shareholder vote as
may be required by the 1940 Act or as may be permitted by the Articles of
Incorporation or By-laws.
The Corporation's Articles of Incorporation provide that the presence in person
or by proxy of the holders of record of one third of the shares outstanding and
entitled to vote thereat shall constitute a quorum at all meetings of
shareholders of a Fund, except as otherwise required by applicable law. The
Articles of Incorporation further provide that all questions shall be decided by
a majority of the votes cast at any such meeting at which a quorum is present,
except as otherwise required by applicable law.
The Corporation's Articles of Incorporation provide that, at any meeting of
shareholders of a Fund or Class, a Financial Intermediary may vote any shares as
to which that Financial Intermediary is the agent of record and which are
otherwise not represented in person or by proxy at the meeting, proportionately
in accordance with the votes cast by holders of all shares otherwise represented
at the meeting in person or by proxy as to which that Financial Intermediary is
the agent of record. Any shares so voted by an Financial Intermediary are deemed
represented at the meeting for purposes of quorum requirements.
The Portfolio is a series of the Deutsche Portfolios, a trust organized under
the law of the State of New York. The Deutsche Portfolios' Declaration of Trust
provides that the Funds and other entities investing in the Portfolio (e.g.,
other investment companies, insurance company separate accounts and common and
commingled trust funds) are each liable for all obligations of the Portfolio.
However, the risk of a Fund incurring financial loss on account of such
liability is limited to circumstances in which both inadequate insurance existed
and the Portfolio itself was unable to meet its obligations. Accordingly, the
Directors of the Corporation believe that neither the Funds nor their
shareholders will be adversely affected by reason of the investment of all of
the assets of the Funds in the Portfolio.
Each investor in the Portfolio, including the Funds, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange is open for
regular trading. At 4:00 p.m. (U.S. Eastern time) on each such business day, the
value of each investor's beneficial interest in the Portfolio is determined by
multiplying the net asset value of the Portfolio by the percentage, effective
for that day that represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals, which are to be
effected on that day, are then effected. The investor's percentage of the
aggregate beneficial interests in the Portfolio is then recomputed as the
percentage equal to the fraction (i)the numerator of which is the value of such
investor's investment in the Portfolio as of 4:00 p.m. (U.S. Eastern time) on
such day plus or minus, as the case may be, the amount of any additions to or
withdrawals from the investor's investment in the Portfolio effected on such
day, and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of 4:00 p.m. (U.S. Eastern time) on such day plus or minus, as the
case may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined is then applied to determine the value of the
investor's interest in the Portfolio as of 4:00 p.m. (U.S. Eastern time) on the
following business day of the Portfolio.
Whenever the Corporation is requested to vote on a matter pertaining to the
Portfolio, the Corporation will vote its shares without a meeting of
shareholders of the Funds if the proposal is one that, if made with respect to
the Funds, would not require the vote of shareholders of the Funds, as long as
such action is permissible under applicable statutory and regulatory
requirements. For all other matters requiring a vote, the Corporation will hold
a meeting of shareholders of the Funds and, at the meeting of investors in the
Portfolio, the Corporation will cast all of its votes in the same proportion as
the votes of the Funds' shareholders even if all Fund shareholders did not vote.
Even if the Corporation votes all its shares at the Portfolio Trust meeting,
other investors with a greater pro rata ownership in the Portfolio could have
effective voting control of the operations of the Portfolio.
As of March 20, 1998, the following shareholders owned 25% or more of the Funds,
and therefore, may for certain purposes be deemed to control the Funds and be
able to affect the outcome of certain matters presented for a vote of
shareholders:
Federated Administrative Services, Pittsburgh, PA, owned 100% of the voting
securities of the Class Y Fund.
Alvin E. Foreman, Bridgeport, CT, owned 54.61% of the voting securities of the
Class A Shares of the Fund, comprising 54.61% of the total common stock of the
Class A and Class B Fund.
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TAXES
- --------------------------------------------------------------------------------
The Corporation intends that the Funds will qualify as a separate "regulated
investment company" under Subchapter M of the Code. As a regulated investment
company, each Fund will not be subject to U.S. federal income tax on its income
and gains that it distributes to stockholders, provided that it distributes at
least 90% of its net investment income (which includes income, other than
capital gains, net of operating expenses, and the Fund's net short-term capital
gains in excess of its net long-term capital losses and capital loss carry
forward, if any). Each Fund intends to distribute at least annually to its
shareholders substantially all of its net investment income (and realized net
capital gains, if any) for each taxable year. The Portfolio intends to elect to
be treated as a partnership for U.S. federal income tax purposes. As such, the
Portfolio generally should not be subject to U.S. taxes.
Dividends of net investment income are taxable to a U.S. shareholder as ordinary
income whether such distributions are taken in cash or are reinvested in
additional shares. Although each Fund does not intend to have any long-term
capital gains, distributions of net long-term capital gains, if any, are taxable
to a U.S. shareholder as long-term capital gains, regardless of how long the
shareholder has held the Fund's shares and regardless of whether taken in cash
or reinvested in additional shares.
For further information on taxes, see "Taxes" in the Statement of Additional
Information.
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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 on
monthly statements, reflecting all other account activity, including dividends
and any distributions reinvested in additional shares or credited as cash.
In addition to selling beneficial interests to the Funds, the Portfolio may sell
beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Funds. Such different pricing structures
may result in differences in returns experienced by investors in other funds
that invest in the Portfolio. Such differences in returns are not uncommon and
are present in other mutual fund structures. Information concerning other
holders of interests in the Portfolio is available from the Administrator at
888-4-DEUTSCHE.
Each Fund may withdraw its investment from the Portfolio at any time if the
Board of Directors of the Corporation determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Directors
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with its investment
objective and policies.
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APPENDIX A
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THIS APPENDIX IS INTENDED TO PROVIDE DESCRIPTIONS OF THE SHORT-TERM SECURITIES
THE PORTFOLIO MAY PURCHASE. HOWEVER, OTHER SUCH SECURITIES NOT MENTIONED BELOW
MAY BE PURCHASED FOR THE PORTFOLIO IF THEY MEET THE QUALITY AND MATURITY
GUIDELINES SET FORTH IN THE PORTFOLIO'S INVESTMENT POLICIES.
U.S. Government Securities
Assets of the Portfolio may be invested in securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. These securities,
including those which are guaranteed by federal agencies or instrumentalities,
may or may not be backed by the "full faith and credit" of the United States. In
the case of securities not backed by the full faith and credit of the United
States, it may not be possible to assert a claim against the United States
itself in the event the agency or instrumentality issuing or guaranteeing the
security for ultimate repayment does not meet its commitments. Securities which
are not backed by the full faith and credit of the United States include, but
are not limited to, securities of the Tennessee Valley Authority, the Federal
National Mortgage Association (FNMA), the U.S. Postal Service and the Resolution
Funding Corporation (REFCORP), each of which has a limited right to borrow from
the U.S. Treasury to meet its obligations, and securities of the Federal Farm
Credit System, the Federal Home Loan Banks, the Federal Home Loan Mortgage
Corporation (FHLMC) and the Student Loan Marketing Association, the obligations
of each of which may be satisfied only by the individual credit of the issuing
agency. Securities which are backed by the full faith and credit of the United
States include Treasury bills, Treasury notes, Treasury bonds and pass-through
obligations of the Government National Mortgage Association (GNMA), the Farmers
Home Administration and the Export-Import Bank. There is no percentage
limitation with respect to investments in U.S. Government securities.
Bank Obligations
Assets of the Portfolio may be invested in U.S. dollar-denominated negotiable
certificates of deposit, fixed time deposits and bankers' acceptances of banks,
savings and loan associations and savings banks organized under the laws of the
United States or any state thereof, including obligations of non-U.S. branches
of such banks, or of non-U.S. banks or their U.S. or non-U.S. branches, provided
that in each case, such bank has more than $500 million in total assets, and has
an outstanding short-term debt issue rated within the highest rating category
for short-term debt obligations by at least two (unless only rated by one)
nationally recognized statistical rating organizations (e.g., Moody's and S&P)
or, if unrated, are of comparable quality as determined by or under the
direction of the Portfolio's Board of Trustees. See "Bond, Note and Commercial
Paper Ratings" in the Statement of Additional Information.
There is no additional percentage limitation with respect to investments in
negotiable certificates of deposit, fixed time deposits and bankers' acceptances
of U.S. branches of U.S. banks and U.S. branches of non-U.S. banks that are
subject to the same regulation as U.S. banks. Since the Portfolio may contain
U.S. dollar-denominated certificates of deposit, fixed time deposits and
bankers' acceptances that are issued by non-U.S. banks and their non-U.S.
branches, the Portfolio may be subject to additional investment risks with
respect to those securities that are different in some respects from obligations
of U.S. issuers, such as currency exchange control regulations, the possibility
of expropriation, seizure or nationalization of non-U.S. deposits, less
liquidity and more volatility in non-U.S. securities markets and the impact of
political, social or diplomatic developments or the adoption of other foreign
government restrictions which might adversely affect the payment of principal
and interest on securities held by the Portfolio. If it should become necessary,
greater difficulties might be encountered in invoking legal processes abroad
than would be the case in the United States. Issuers of non-U.S. bank
obligations may be subject to less stringent or different regulations than are
U.S. bank issuers, there may be less publicly available information about a non-
U.S. issuer, and non-U.S. issuers generally are not subject to uniform
accounting and financial reporting standards, practices and requirements
comparable to those applicable to U.S. issuers. Income earned or received by the
Portfolio from sources within countries other than the United States may be
reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States, however, may reduce
or eliminate such taxes. All such taxes paid by the Portfolio would reduce its
net income available for distribution to investors (i.e., the Funds and other
investors in the Portfolio); however, the Adviser would consider available
yields, net of any required taxes, in selecting securities of non-U.S. issuers.
While early withdrawals are not contemplated, fixed time deposits are not
readily marketable and may be subject to early withdrawal penalties, which may
vary. Assets of the Portfolio are not invested in obligations of the Manager, or
the Distributor, or in the obligations of the affiliates of any such
organization. Assets of the Portfolio are also not invested in fixed time
deposits with a maturity of over seven calendar days, or in fixed time deposits
with a maturity of from two business days to seven calendar days if more than
10% of the Portfolio's net assets would be invested in such deposits.
Commercial Paper
Assets of the Portfolio may be invested in commercial paper including variable
rate demand master notes issued by U.S. corporations or by non-U.S. corporations
which are direct parents or subsidiaries of U.S. corporations. Master notes are
demand obligations that permit the investment of fluctuating amounts at varying
market rates of interest pursuant to arrangements between the issuer and a U.S.
commercial bank acting as agent for the payees of such notes. Master notes are
callable on demand, but are not marketable to third parties. Consequently, the
right to redeem such notes depends on the borrower's ability to pay on demand.
At the date of investment, commercial paper must be rated within the highest
rating category for short-term debt obligations by at least two (unless only
rated by one) nationally recognized statistical rating organizations (e.g.,
Moody's and S&P) or, if unrated, are of comparable quality as determined by or
under the direction of the Portfolio's Board of Trustees. Any commercial paper
issued by a non-U.S. corporation must be U.S. dollar-denominated and not subject
to non-U.S. withholding tax at the time of purchase. Aggregate investments in
non-U.S. commercial paper of non-U.S. issuers cannot exceed 10% of the
Portfolio's net assets. Since the Portfolio may contain commercial paper issued
by non-U.S. corporations, it may be subject to additional investment risks with
respect to those securities that are different in some respects from obligations
of U.S. issuers, such as currency exchange control regulations, the possibility
of expropriation, seizure or nationalization of non-U.S. deposits, less
liquidity and more volatility in non-U.S. securities markets and the impact of
political, social or diplomatic developments or the adoption of other foreign
government restrictions which might adversely affect the payment of principal
and interest on securities held by the Portfolio. If it should become necessary,
greater difficulties might be encountered in invoking legal processes abroad
than would be the case in the United States. There may be less publicly
available information about a non-U.S. issuer, and non-U.S. issuers generally
are not subject to uniform accounting and financial reporting standards,
practices and requirements comparable to those applicable to U.S. issuers.
Repurchase Agreements
Repurchase agreements may be entered into for the Portfolio only with a "primary
dealer" (as designated by the Federal Reserve Bank of New York) in U.S.
Government securities. This is an agreement in which the seller (the "Lender")
of a security agrees to repurchase from the Portfolio the security sold at a
mutually agreed upon time and price. As such, it is viewed as the lending of
money to the Lender. The resale price normally is in excess of the purchase
price, reflecting an agreed upon interest rate. The rate is effective for the
period of time assets of the Portfolio are invested in the agreement and is not
related to the coupon rate on the underlying security. The period of these
repurchase agreements is usually short, from overnight to one week, and at no
time are assets of the Portfolio invested in a repurchase agreement with a
maturity of more than one year. The securities which are subject to repurchase
agreements, however, may have maturity dates in excess of one year from the
effective date of the repurchase agreement. The Portfolio always receives as
collateral securities which are issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Collateral is marked to the market daily and has
a market value including accrued interest at least equal to 100% of the dollar
amount invested on behalf of the Portfolio in each agreement along with accrued
interest. Payment for such securities is made for the Portfolio only upon
physical delivery or evidence of book-entry transfer to the account of IBT, the
Portfolio's Custodian. If the Lender defaults, the Portfolio might incur a loss
if the value of the collateral securing the repurchase agreement declines and
might incur disposition costs in connection with liquidating the collateral. In
addition, if bankruptcy proceedings are commenced with respect to the Lender,
realization upon the collateral on behalf of the Portfolio may be delayed or
limited in certain circumstances. A repurchase agreement with more than seven
days to maturity may not be entered into for the Portfolio if, as a result, more
than 10% of the Portfolio's net assets would be invested in such repurchase
agreement together with any other investment for which market quotations are not
readily available.
When-Issued and Delayed Delivery Securities
Securities may be purchased for the Portfolio on a when-issued or delayed
delivery basis. For example, delivery and payment may take place a month or more
after the date of the transaction. The purchase price and the interest rate
payable on the securities are fixed on the transaction date. The securities so
purchased are subject to market fluctuation and no interest accrues to the
Portfolio until delivery and payment take place. At the time the commitment to
purchase securities for the Portfolio on a when-issued or delayed delivery basis
is made, the transaction is recorded and thereafter the value of such securities
is reflected each day in determining the Portfolio's net asset value. At the
time of its acquisition, a when-issued security may be valued at less than the
purchase price. Commitments for such when-issued securities are made only when
there is an intention of actually acquiring the securities. To facilitate such
acquisitions, a segregated account with the Custodian is maintained for the
Portfolio with liquid assets in an amount at least equal to such commitments.
Such a segregated account consists of liquid, high grade debt securities marked
to the market daily, with additional liquid assets added when necessary to
insure that at all times the value of such account is equal to the commitments.
On delivery dates for such transactions, such obligations are met from
maturities or sales of the securities held in the segregated account and/or from
cash flow. If the right to acquire a when-issued security is disposed of prior
to its acquisition, the Portfolio could, as with the disposition of any other
portfolio obligation, incur a gain or loss due to market fluctuation. When-
issued commitments for the Portfolio may not be entered into if such commitments
exceed in the aggregate 15% of the market value of the Portfolio's total assets,
less liabilities other than the obligations created by when-issued commitments.
Securities of the World Bank, Other Supranational Organizations and
Foreign Governments
Assets of the Portfolio may also be invested in obligations of the International
Bank of Reconstruction and Development (also known as the World Bank) and
certain other supranational organizations, which are supported by subscribed but
unpaid commitments of member countries. There is no assurance that these
commitments will be undertaken or complied with in the future. The Portfolio
limits its investment in United States dollar-denominated obligations of foreign
governments and their agencies and instrumentalities to the commercial paper and
other short-term notes (or other notes with remaining maturities meeting the
requirements of Rule 2a-7) issued or guaranteed by the governments, or agencies
and instrumentalities thereof, that are members of the OECD (Organisation for
Economic Co-Operation and Development) and those countries whose sovereign
issuances qualify as Eligible Securities.
Other Obligations
Assets of the Portfolio may be invested in bonds, with remaining maturities not
exceeding one year, issued by U.S. corporations which at the date of investment
are rated within the highest rating category for such obligations by at least
two (unless only rated by one) nationally recognized statistical rating
organizations (e.g., Moody's and S&P) or, if unrated, are of comparable quality
as determined by or under the direction of the Portfolio's Board of Trustees.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Corporation or the Distributor. This Prospectus
does not constitute an offer by the Corporation or by the Distributor to sell or
a solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Corporation or the
Distributor to make such offer in such jurisdiction.
Deutsche US Money Market Funds
Class A Shares, Class B Shares and Class Y Shares
Statement of Additional Information
The Deutsche US Money Market Fund (the "Class A and Class B Fund") and the
Deutsche Institutional US Money Market Fund (the "Class Y Fund") (collectively,
the "Funds"), each is a series of the Deutsche Funds, Inc. (the "Corporation"),
a management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The investment objective of each Fund is to
achieve as high a level of current income as is consistent with the preservation
of capital and the maintenance of liquidity.
The Corporation seeks to achieve the investment objective of each Fund by
investing all of the Fund's investable assets in US Money Market Portfolio (US
Dollar) (the "Portfolio"), a diversified, open-end management investment
company. The Portfolio pursues its investment objective by investing in high
quality, short-term money market instruments.
The Portfolio is a series of the Deutsche Portfolios (the "Portfolio Trust"), an
open-end investment company organized as a trust under the laws of the State of
New York. The Portfolio has the same investment objective as the Funds. There
can be no assurance that the Funds or the Portfolio will achieve their
investment objective.
The Class A and Class B Fund offers two classes of shares, Class A shares and
Class B shares (individually and collectively referred to as "Shares" as the
context may require). Class A shares are offered at net asset value; Class B
shares are designed primarily for temporary investment as part of a special
investment program in Class B shares, and unlike shares of most money market
funds, are offered at net asset value, but with a declining contingent deferred
sales charge on redemptions made within six years.
Deutsche Fund Management, Inc. ("DFM"), a registered investment adviser and an
indirect subsidiary of Deutsche Bank AG, a major global financial institution,
is the investment manager (the "Manager") of the Portfolio. Deutsche Morgan
Grenfell Investment Management Inc. ("DMGIM") is the investment adviser (the
"Adviser") of the Portfolio. This Statement of Additional Information is not a
prospectus and should be read in conjunction with the Funds' Prospectus dated
April 30, 1998, a copy of which may be obtained from the Corporation at the
address noted below.
Federated Investors Tower
Pittsburgh, PA 15222-3779
The date of this Statement of Additional Information is April 30, 1998.
Edgewood Services, Inc.
G02179-07 (4/98)
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Table of Contents
<TABLE>
<S> <C>
Investment Objective and Policies 1
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Loans of Portfolio Securities 1
Investment Restrictions 1
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Non-fundamental Restrictions 2
Percentage and Rating Restrictions 2
Directors, Trustees and Officers 3
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Directors of the Corporation and Trustees
of the Portfolio Trust 3
Officers of the Corporation 4
Compensation Table--Directors of
the Corporation 5
Compensation Table--Trustees of
the Portfolio Trust 5
Fund Ownership 6
Manager 6
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Adviser 7
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Administrator 7
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Operations Agent 8
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Administrative Agent 8
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Distributor 9
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Transfer Agent, Custodian and Fund Accountant 10
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Independent Accountants 10
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Purchase of Shares 10
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Conversion to Federal Funds 10
Purchasing Shares with Securities 10
Redemption of Shares 10
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Redemption in Kind 10
Systematic Withdrawal Program 11
Exchange of Shares 11
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Net Asset Value 11
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Performance Data 12
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Yield 12
General 12
Economic and Market Information 13
Portfolio Transactions 13
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Taxes 14
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United States Taxation 14
State and Local Taxes 14
Description of Shares 14
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Additional Information 15
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Bond, Note and Commercial Paper Ratings 16
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Moody's Investors Service, Inc. ("Moody's")
Bond Ratings 16
Standard & Poor's Corporation ("S&P") 16
Note and Variable Rate Investment Ratings 16
Corporate Commercial Paper Ratings 16
Other Considerations 16
Financial Statements 17
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</TABLE>
Investment Objective and Policies
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The following supplements the information contained in the Funds' Prospectus
concerning the investment objective, policies and techniques of the Portfolio.
Loans of Portfolio Securities
Securities of the Portfolio may be loaned if such loans are secured continuously
by cash or equivalent collateral or by an irrevocable letter of credit in favor
of the Portfolio at least equal at all times to 100% of the market value of the
securities loaned plus accrued income. While such securities are on loan, the
borrower pays the Portfolio any income accruing thereon, and cash collateral may
be invested for the Portfolio, thereby earning additional income. All or any
portion of interest earned on invested collateral may be paid to the borrower.
Loans are subject to termination by the Portfolio in the normal settlement time,
currently three business days after notice, or by the borrower on one day's
notice. Borrowed securities are returned when the loan is terminated. Any
appreciation or depreciation in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
investors. Reasonable finders' and custodial fees may be paid in connection with
a loan. In addition, all facts and circumstances, including the creditworthiness
of the borrowing financial institution, are considered before a loan is made and
no loan is made in excess of one year. There is the risk that a borrowed
security may not be returned to the Portfolio.
Investment Restrictions
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The investment restrictions of the Funds and the Portfolio are identical, unless
otherwise specified. Accordingly, references below to the Funds also include the
Portfolio unless the context requires otherwise; similarly, references to the
Portfolio also include the Funds unless the context requires otherwise.
The investment restrictions below have been adopted by the Corporation with
respect to the Funds as indicated and by the Portfolio Trust with respect to the
Portfolio as indicated. Except where otherwise noted, these investment
restrictions are "fundamental" policies which, under the 1940 Act, may not be
changed without the vote of a "majority of the outstanding voting securities"
(as defined in the 1940 Act) of a Fund or the Portfolio, as the case may be. The
percentage limitations contained in the restrictions below apply at the time of
the purchase of securities except as otherwise noted. Whenever a Fund is
requested to vote on a change in the fundamental investment restrictions of the
Portfolio, the Corporation will hold a meeting of Fund shareholders and will
cast its votes as instructed by such Fund's shareholders.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any Securities and Exchange
Commission ("SEC") or SEC staff interpretations thereof are amended or modified,
each Fund and the Portfolio may not (except that the Corporation may invest all
of each Fund's assets in the Portfolio):
(1) enter into repurchase agreements with more than seven days to maturity if,
as a result thereof, more than 10% of the market value of its net assets
would be invested in such repurchase agreements together with any other
investment for which market quotations are not readily available;
(2) enter into reverse repurchase agreements which, including any borrowings
under Investment Restriction No. 3, exceed, in the aggregate, one-third of
the market value of its total assets, less liabilities other than
obligations created by reverse repurchase agreements. In the event that such
agreements exceed, in the aggregate, one-third of such market value, it
will, within three days thereafter (not including Sundays and holidays) or
such longer period as the SEC may prescribe, reduce the amount of the
obligations created by reverse repurchase agreements to an extent that such
obligations will not exceed, in the aggregate, one-third of the market value
of its assets;
(3) borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts not to exceed 10% of the value of its total assets,
taken at cost, at the time of such borrowing; mortgage, pledge or
hypothecate any assets except in connection with any such borrowing and in
amounts not to exceed 10% of the value of its net assets at the time of such
borrowing. Neither the Portfolio nor the Corporation on behalf of the Funds,
as the case may be, will purchase securities while borrowings exceed 5% of
its total assets. This borrowing provision is included to facilitate the
orderly sale of portfolio securities, for example, in the event of
abnormally heavy redemption requests, and is not for investment purposes and
does not apply to reverse repurchase agreements;
(4) enter into when-issued commitments exceeding in the aggregate 15% of the
market value of its total assets, less liabilities other than obligations
created by when-issued commitments;
(5) purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of such investments in such industry would equal or
exceed 25% of the value of its total assets. For purposes of industry
concentration, there is no percentage limitation with respect to investments
in U.S. Government securities and negotiable certificates of deposit, fixed
time deposits and bankers' acceptances of U.S. branches of U.S. banks and
U.S. branches of non-U.S. banks that are subject to the same regulation as
U.S. banks;
(6) purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of its total
assets would be invested in securities or other obligations or any one such
issuer. This limitation does not apply to issues of the U.S. Government, its
agencies or instrumentalities;
(7) make loans, except through the purchase or holding of debt obligations,
repurchase agreements or loans of portfolio securities in accordance with
its investment objective and policies (see "Investment Objective and
Policies");
(8) purchase or sell puts, calls, straddles, spreads, or any combinations
thereof; real estate; commodities; commodity contracts or interests in oil,
gas or mineral exploration or development programs. However, bonds or
commercial paper issued by companies which invest in real estate or
interests therein including real estate investment trusts may be purchased;
(9) purchase securities on margin, make short sales of securities or maintain a
short position, provided that this restriction is not deemed to be
applicable to the purchase or sale of when-issued securities or of
securities for delivery at a future date;
(10) invest in fixed time deposits with a duration of over seven calendar days,
or in fixed time deposits with a duration of from two business days to
seven calendar days if more than 10% of its total assets would be invested
in such deposits;
(11) acquire securities of other investment companies;
(12) act as an underwriter of securities; or
(13) issue any senior security (as that term is defined in the 1940 Act) if such
issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder.
Non-fundamental Restrictions
In order to comply with certain federal statutes and policies neither the
Portfolio nor the Funds may as a matter of operating policy (except that each
Fund may invest all of its assets in an open-end investment company with
substantially the same investment objective, policies and restrictions as the
Fund): (i) borrow money at any time at which the amount of its borrowings exceed
5% of its total assets (taken at market value), (ii) purchase securities issued
by any investment company if such purchase at the time thereof would cause more
than 5% of its total assets (taken at the greater of cost or market value) to be
invested in the securities of such issuer, would cause more than 10% of its
total assets (taken at the greater of cost or market value) to be invested in
the securities of such issuer and all other investment companies or would cause
more than 3% of the outstanding voting securities of any such issuer to be held
for it, or (iii) invest more than 10% of its net assets in securities (valued at
the greater of cost or market value) that are subject to legal or contractual
restrictions on resale or in securities which are not readily marketable,
including repurchase agreements and fixed time deposits having maturities of
more than 7 days, provided that there is no limitation with respect to or
arising out of investment in (a) securities that have legal or contractual
restrictions on resale but have a readily available market or (b) securities
that are not registered under the Securities Act but which can be sold to
qualified institutional buyers in accordance with Rule 144A under the Securities
Act. These policies are not fundamental and may be changed without shareholder
or investor approval in response to changes in the various federal requirements.
Percentage and Rating Restrictions
Except with respect to Fundamental Investment Restriction No. 2 and Non-
fundamental Restriction (iii) above and the limitation on the Portfolio's
obligations created by reverse repurchase agreements described in the Prospectus
under "Investment Objectives, Policies and Restrictions--Reverse Repurchase
Agreements," a percentage or rating restriction on investment or utilization of
assets set forth above or referred to in the Prospectus is adhered to at the
time an investment is made or assets are so utilized, a later change in
percentage resulting from changes in the value of the portfolio securities or a
later change in the rating of a portfolio security is not considered a violation
of policy. If the Funds' and the Portfolio's investment restrictions relating to
any particular investment practice or policy are not consistent, the Portfolio
has agreed with the Corporation, on behalf of the Funds, that the Portfolio will
adhere to the more restrictive limitation.
The Funds will comply with Rule 2a-7 under the 1940 Act, including the
eligibility, diversification, quality and maturity limitations imposed by the
Rule.
Currently, pursuant to Rule 2a-7, the Funds may invest only in U.S.
dollar-denominated "eligible securities" (as that term is defined in the Rule)
that have been determined by the Adviser to present minimal credit risks
pursuant to procedures approved by the Trustees. Generally, an eligible security
is a security that (i) has a remaining maturity of 397 days or less and (ii) is
rated, or is issued by an issuer with short-term debt outstanding that is rated
in one of the two highest rating categories by two nationally recognized
statistical rating organizations ("NRSROs") or, if only one NRSRO has issued a
rating, by that NRSRO. A security that originally had a maturity of greater than
397 days is an eligible security if its remaining maturity at the time of
purchase is 397 calendar days or less and the issuer has outstanding short-term
debt that would be an eligible security. Unrated securities may also be eligible
securities if the Adviser determines that they are of comparable quality to a
rated eligible security pursuant to guidelines approved by the Trustees. A
description to the ratings of some NRSROs appears in the Appendix attached
hereto.
Under Rule 2a-7 each Fund may not invest more than five percent of its assets in
the securities of any one issuer other than the United States Government, its
agencies and instrumentalities. In addition, each Fund may not invest in a
security that has received, or is deemed comparable in quality to a security
that has received, the second highest rating by the requisite number of NRSROs
(a "second tier security") if immediately after the acquisition thereof the Fund
would have invested more than (A) the greater of one percent of its total assets
or one million dollars in securities issued by that issuer which are second tier
securities, or (B) five percent of its total assets in second tier securities.
Directors, Trustees, and Officers
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The Directors of the Corporation, Trustees of the Portfolio Trust and executive
officers of the Corporation and the Portfolio Trust, and principal occupations
during the past five years (although their titles may have varied during the
period) and business addresses are:
Directors of the Corporation and Trustees of the Portfolio Trust
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Edward C. Schmults
Member of the Board of Directors of Green Point Financial Corp. Chairman of the
Board of Trustees of The Edna McConnell Clark Foundation. Director of The
Germany Fund, Inc. and The Central European Equity Fund, Inc. Senior Vice
President-External Affairs and General Counsel of GTE Corporation (prior to
1994). Mr. Schmults' address is Rural Route One, Box 788, Cuttingsville, VT
05738.
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Robert H. Wadsworth
President of The Wadsworth Group, First Fund Distributors, Inc. and Guinness
Flight Investment Funds, Inc. Director of The Germany Fund, Inc., The New
Germany Fund, Inc. and The Central European Equity Fund, Inc. Vice President of
Professionally Managed Portfolios and Advisors Series Trust. Mr. Wadsworth's
address is Investment Company Administration Corp., 479 West 22nd Street, New
York, NY 10011.
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Werner Walbroel
President and Chief Executive of the German American Chamber of Commerce, Inc.
Member of the United States German Youth Exchange Council. Director of TUV
Rheinland of North America, Inc. President and Director of German American
Partnership Program. Director of The Germany Fund, Inc., DB New World Fund,
Limited and LDC, and The Central European Equity Fund, Inc. Mr. Walbroel's
address is German American Chamber of Commerce, Inc., 40 West 57th Street, New
York, NY 10019.
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G. Richard Stamberger*+
Managing Director of Deutsche Morgan Grenfell Inc. President, Deutsche Morgan
Grenfell Investment Management Inc. Director of The Germany Fund, Inc., The New
Germany Fund, Inc. and The Central European Equity Fund, Inc. Managing Director
of C.J. Lawrence, Inc. (prior to 1993). Mr. Stamberger's address is Deutsche
Morgan Grenfell Investment Management Inc., 31 West 52nd Street, New York, NY
10019.
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Christian Strenger*+
Managing Director of DWS Deutsche Gesellschaft fuer Wertpapiersparen mbH (since
1991). Director of The Germany Fund, Inc., The New Germany Fund, Inc. and The
Central European Equity Fund, Inc. Managing Director of Deutsche Bank Securities
Corp. (prior to 1991). Mr. Strenger's address is DWS Deutsche Gesellschaft fuer
Wertpapiersparen mbH, Gruneburgweg 113-115, 60323 Frankfurt am Main, Germany.
- -------------------------------------------------------------------------------
Officers of the Corporation
- -------------------------------------------------------------------------------
Brian A. Lee+
President
President and Managing Director of DFM (since January 1997). Director of
Deutsche Bank Trust Company (since 1994). President and Chief Operating Officer
of Deutsche Bank Trust Company (1994 - 1997). Director of Deutsche Bank
Securities Corp. (1993-1994). Director of Value Line Securities, Inc. (1992-
1993). National Director and Head of Retail Sales and Service Division, The
Dreyfus Corporation (prior to 1992). Director, Boggy Creek Hole in the Wall Gang
Camp for Children. Trustee, Valley Hospital. Director, Capital Sources Board,
State of New Jersey.
- -------------------------------------------------------------------------------
Joseph Cheung
Treasurer
Vice President (since 1996), Assistant Vice President (1994-1996) and Associate
(1991-1994) of Deutsche Morgan Grenfell Inc. Treasurer of the CountryBaskets
Index Fund, Inc. (1996-1997). Assistant Secretary and Assistant Treasurer of The
Germany Fund, Inc., The Central European Equity Fund, Inc. and the New Germany
Fund, Inc. (since 1993).
- -------------------------------------------------------------------------------
Robert R. Gambee
Secretary
Director of Deutsche Morgan Grenfell, Inc. (since 1992). First Vice President of
Deutsche Morgan Grenfell, Inc. (1987-1991). Treasurer and Secretary of The
Germany Fund, Inc., The Central European Equity Fund, Inc. and the New Germany
Fund, Inc.
- -------------------------------------------------------------------------------
Laura Weber
Assistant Secretary and Assistant Treasurer
Associate of Deutsche Morgan Grenfell Inc. (since June, 1997). Manager of
Raymond James Financial (1996-1997). Portfolio Accountant of Oppenheimer Capital
(1995-1996). Supervisor (1994-1995) and Mutual Fund Accountant (1993-1994) of
Alliance Capital Management.
- -------------------------------------------------------------------------------
* Is an "interested person" of the Corporation or the Portfolio Trust as that
term is defined in the 1940 Act.
+ Mr. Lee, Mr. Strenger and Mr. Stamberger own less than 1% of the shares of
Deutsche Bank AG, of which the Manager and Adviser are indirect subsidiaries.
The address of each officer of the Corporation is 31 West 52nd Street, New York,
NY 10019.
Officers of the Portfolio Trust
- -------------------------------------------------------------------------------
Holger Naumann
Treasurer. Director of DFM (since January 1997). Head of Participations at
DWS-DGW since December 1995). Group Strategy Department at Deutsche Bank AG
(prior to December 1995).
- -------------------------------------------------------------------------------
Compensation Table--Directors of the Corporation
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aggregate Estimated Total
Compensation Compensation
from the from the Corporation
Corporation and Fund Complex*+
- -------------------------------------------------------------------------------
<S> <C> <C>
Edward C. Schmults,
Director $7,000 $44,750
Robert H. Wadsworth,
Director $7,000 $62,000
Werner Walbroel,
Director $7,000 $46,250
G. Richard Stamberger,
Director None None
Christian Strenger,
Director None None
- -------------------------------------------------------------------------------
</TABLE>
* The Fund Complex consists of the Corporation, the Portfolio Trust, The New
Germany Fund, Inc., The Central European Equity Fund, Inc. and The Germany
Fund, Inc.
+ Information is furnished for the period from May 22, 1997, organization date
of the Corporation, to August 31, 1998.
Compensation Table--Trustees of the Portfolio Trust
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aggregate Estimated Total
Compensation Compensation from
from the the Portfolio Trust
Portfolio Trust and Fund Complex*+
- -------------------------------------------------------------------------------
<S> <C> <C>
Edward C. Schmults,
Trustee $7,000 $44,750
Robert H. Wadsworth,
Trustee $7,000 $62,000
Werner Walbroel,
Trustee $7,000 $46,250
G. Richard Stamberger,
Trustee None None
Christian Strenger,
Trustee None None
- -------------------------------------------------------------------------------
</TABLE>
* The Fund Complex consists of the Portfolio Trust, the Corporation, The New
Germany Fund, Inc., The Central European Equity Fund, Inc. and The Germany
Fund, Inc.
+ Information is furnished for the period from May 22, 1997, organization date
of the Portfolio Trust, to August 31, 1998.
The non-interested Directors of the Corporation receive a base annual fee of
$5,000 and $500 per meeting attended, plus expenses, which are paid jointly by
all series of the Corporation and allocated among the series based upon their
respective net assets.
The non-interested Trustees of the Portfolio Trust receive a base annual fee of
$5,000 and $500 per meeting attended plus expenses which is paid jointly by all
series of the Portfolio Trust and allocated among the series based upon their
respective net assets.
Neither the Corporation nor the Portfolio Trust requires employees and none of
the Corporation's officers devote full time to the affairs of the Corporation or
receive any compensation from a Fund or a Portfolio.
Fund Ownership
As of March 20, 1998, the following shareholders of record owned 5% or more of
the outstanding Class A Shares: Alvin E. Foreman, Bridgeport, CT, owned
approximately 900 (54.61%) Class A Shares; Edward A. and Deborah A. Betts,
Staten Island, NY, owned approximately 150 (9.10%) Class A Shares; Erin A.
Copenbarger, Jersey City, NJ, owned approximately 150 (9.10%) Class A Shares;
Natasha R. Mason, Edison, NJ, owned approximately 150 (9.10%) Class A Shares;
and Federated Administrative Services, Pittsburgh, PA, owned approximately 100
(6.07%) Class A Shares.
As of March 20, 1998, no person owned 5% or more of the outstanding voting stock
of the Class B Shares of the ClassA and B Fund.
As of March 20, 1998, the following shareholders of record owned 5% or more of
the outstanding Class Y Shares: Federated Administrative Services, Pittsburgh,
PA, owned 100 (100%) Class Y Shares.
As of March 20, 1998, the Directors of the Corporation, Trustees of the
Portfolio Trust and Officers of the Corporation and the Portfolio Trust as a
group owned less than 1% of the Funds. As of the same date, no person owned 5%
or more of the outstanding voting stock of any Portfolio, except that the
Corporation owned 100% of the outstanding beneficial interests in each
Portfolio.
Manager
- -------------------------------------------------------------------------------
The investment manager to the Portfolio is DFM, an indirect subsidiary of
Deutsche Bank AG, a major global banking institution headquartered in Germany.
DFM, with principal offices at 31 West 52nd Street, New York, New York 10019, is
a Delaware corporation and registered investment adviser under the Investment
Advisers Act of 1940.
Pursuant to an investment management agreement with the Portfolio Trust with
respect to the Portfolio ("Management Agreement"), DFM acts as investment
manager to the Portfolio and, subject to the supervision of the Board of
Trustees of the Portfolio Trust, is responsible for, but may and has delegated
as described below, under "Adviser," the management of the investment operations
of the Portfolio's investments in accordance with its investment objective,
policies and restrictions. DFM also provides the Portfolio with overall
supervisory services over the other service providers and certain other
services. The investment management services DFM provides to the Portfolio are
not exclusive under the terms of the Management Agreement. DFM is free to render
similar investment management services to others.
The Management Agreement is dated July 28, 1997 and will remain in effect until
July 28, 1999 and from year to year thereafter, but only so long as the
agreement is specifically approved at least annually (i) by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Portfolio, or by the Portfolio Trust's Trustees, and (ii) by a
vote of a majority of the Trustees of the Portfolio Trust who are not parties to
such Management Agreement or "interested persons" (as defined in the 1940 Act)
of the Portfolio Trust, cast in person at a meeting called for the purpose of
voting on such approval. The Management Agreement was initially approved at a
meeting held on July 28, 1997. The Management Agreement will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio Trust's Trustees, or by a vote of the
holders of a majority of the Portfolio's outstanding voting securities, on 60
days' written notice to the Manager and by the Manager on 90 days' written
notice to the Portfolio Trust. The Management Agreement provides that neither
DFM nor its personnel shall be liable for any error of judgment or mistake of
law or for any loss or expense in connection with the matters in which the
agreement relates, except a loss resulting from wilful misfeasance, bad faith or
gross negligence on its part in the performance of its obligations and duties
under the agreement. See "Additional Information."
As compensation for the services rendered and related expenses borne by DFM
under the Management Agreement with the Portfolio Trust with respect to the
Portfolio, DFM receives a fee from the Portfolio, which is computed daily and
may be paid monthly, equal to 0.15% of the average daily net assets of the
Portfolio on an annualized basis for the Portfolio's then-current fiscal year.
DFM and the Adviser have agreed to reimburse certain expenses of the Class A and
Class B Fund, and, together with certain other service providers to the Class Y
Fund and the Portfolio, to waive and/or reimburse expenses of the Class Y Fund,
for at least one year from the respective Fund's commencement of operations. See
also "Expenses" in the Prospectus.
The Portfolio did not have any operations through February 28, 1998, and
therefore, did not incur any management fees.
The Glass-Steagall Act and other applicable laws generally prohibit banks
(including foreign banks having U.S. operations, such as Deutsche Bank AG) from
engaging in the business of underwriting or distributing securities in the
United States, and the Board of Governors of the Federal Reserve System has
issued an interpretation to the effect that under these laws a bank holding
company registered under the Federal Bank Holding Company Act (or a foreign bank
subject to such Act's provisions) or certain subsidiaries thereof may not
sponsor, organize, or control a registered open-end investment company
continuously engaged in the issuance of its shares, such as the Corporation. The
interpretation does not prohibit a holding company (or such a foreign bank) or a
subsidiary thereof from acting as investment manager and custodian to such an
investment company. Deutsche Bank AG believes that DFM may perform the services
for the Portfolio Trust and the Corporation contemplated by the Management
Agreement without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. It is possible that future changes in federal
statutes and regulations concerning the permissible activities of banks or trust
companies, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, might prevent
DFM from continuing to perform such services for the Portfolio.
Adviser
- -------------------------------------------------------------------------------
DFM has entered into an investment advisory agreement (the "Advisory Agreement")
dated July 28, 1997, with DWS International Portfolio Management GmbH and DMGIM
on behalf of the Portfolio Trust with respect to the Portfolio and certain other
portfolios of the Portfolio Trust. It is the Adviser's responsibility, under the
overall supervision of DFM, to conduct the day-to-day investment decisions of
the Portfolio, arrange for the execution of portfolio transactions and generally
manage the Portfolio's investments in accordance with its investment objective,
policies and restrictions.
The Adviser is an indirect subsidiary of Deutsche Bank AG. For these services,
the Adviser receives from DFM a fee, which is computed daily and may be paid
monthly, equal to 0.1125% of the average daily net assets of the Portfolio on an
annualized basis for the Portfolio's then-current fiscal year.
The Advisory Agreement is dated July 28, 1997 and will remain in effect until
July 28, 1999 and from year to year thereafter, but only so long as the
agreement is specifically approved at least annually (i) by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Portfolio, or by the Portfolio Trust's Trustees, and (ii) by a
vote of a majority of the Trustees of the Portfolio Trust who are not parties to
such Advisory Agreement or "interested persons" (as defined in the 1940 Act) of
the Portfolio Trust, cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement was initially approved at a
meeting held on July 28, 1997. The Advisory Agreement will terminate
automatically if assigned or if the Management Agreement is terminated and is
terminable at any time without penalty by a vote of a majority of the Portfolio
Trust's Trustees, or by a vote of the holders of a majority of the Portfolio's
outstanding voting securities, on 60 days' written notice to the Adviser and by
the Adviser on 90 days' written notice to the Manager and the Portfolio Trust.
The Advisory Agreement provides that neither the Adviser nor its personnel shall
be liable for any error of judgment or mistake of law or for any loss or expense
in connection with the matters in which the agreement relates, except a loss
resulting from wilful misfeasance, bad faith or gross negligence on its part in
the performance of its obligations and duties under the agreement. See
"Additional Information."
Administrator
- -------------------------------------------------------------------------------
Under the master agreement for administration services with the Corporation
("Administration Agreement"), Federated Services Company serves as administrator
to the Funds ("Administrator"). In connection with its responsibilities as
Administrator, Federated Services Company, among other things (i) prepares,
files and maintains the Funds' governing documents, registration statements and
regulatory filings; (ii) prepares and coordinates the printing of publicly
disseminated documents; (iii) monitors declaration and payment of dividends and
distributions; (iv) projects and reviews the Funds' expenses; (v) performs
internal audit examinations; (vi) prepares and distributes materials to the
Directors of the Corporation; (vii) coordinates the activities of all service
providers; (viii) monitors and supervises collection of tax reclaims; and (ix)
prepares shareholder meeting materials.
The Administration Agreement between the Corporation and Federated Services
Company (dated July 28, 1997) with respect to the Funds has an initial term of
three years. Thereafter, the Administration Agreement will remain in effect
until terminated by either party thereto. The agreement is terminable by the
Corporation at any time after the initial term without penalty by a vote of a
majority of the Directors of the Corporation, or by a vote of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Corporation (see "Additional Information"). The Administration Agreement is
terminable by the Directors of the Corporation or shareholders of the Funds on
60 days' written notice to Federated Services Company. The agreement is
terminable by the Administrator on 90 days' written notice to the Corporation.
The Administration Agreement provides that neither Federated Services Company
nor its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in its
services, except for wilful misfeasance, bad faith or negligence or reckless
disregard of its obligations and duties under the Agreement. See "Additional
Information."
As Administrator, Federated Services Company receives a fee from each Fund,
which is computed daily and may be paid monthly, at an annual rate, for at least
the Fund's first year of operations, equal to 0.045% of the average daily net
assets of the Fund on an annualized basis for the Fund's then-current fiscal
year. If, after the Funds' first year of operations, the average net assets of
the Portfolio (excluding net assets attributable to the Class Y Fund) have not
reached $325 million, the Administrator's fee would be increased to an annual
rate of 0.065% of the average daily net assets of each Fund up to $200 million
and 0.525% of the average daily net assets of each Fund greater than $200
million. The Administrator has agreed, together with the Manager, the Adviser
and certain other service providers to the Class Y Fund and the Portfolio, to
waive a portion of its fees and/or reimburse expenses of the Fund under certain
circumstances for at least one year from the Fund's commencement of investment
operations. See "Expenses."
The Funds did not have any operations through February 28, 1998, and therefore,
did not incur costs for administrative services.
Operations Agent
- -------------------------------------------------------------------------------
Under an operations agency agreement with the Portfolio Trust ("Operations
Agency Agreement"), Federated Services Company serves as operations agent to the
Portfolio ("Operations Agent"). In connection with its responsibilities as
Operations Agent of the Portfolio, Federated Services Company, among other
things; (i) prepares governing documents, registration statements and regulatory
filings; (ii) performs internal audit examinations; (iii) prepares expense
projections; (iv) prepares materials for the Trustees of the Portfolio Trust;
(v) coordinates the activities of all service providers; (vi) conducts
compliance training for the Adviser; and (vii) prepares investor meeting
materials.
The Operations Agency Agreement between the Portfolio Trust and Federated
Services Company (dated July 28, 1997) with respect to the Portfolio has an
initial term of three years. Thereafter, the Operations Agency Agreement will
remain in effect until terminated by either party thereto. The agreement is
terminable by the Portfolio Trust at any time after the initial term without
penalty by a vote of a majority of the Trustees of the Portfolio Trust, or by a
vote of the holders of a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the Portfolio Trust (see "Additional Information").
The Operations Agency Agreement is terminable by the Trustees of the Portfolio
Trust or investors of the Portfolio on 60 days' written notice to Federated
Services Company. The agreement is terminable with respect to the Portfolio by
Federated Services Company on 90 days' written notice to the Portfolio Trust.
The Operations Agent Agreement provides that neither Federated Services Company
nor its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in its
services, except for wilful misfeasance, bad faith or gross negligence or
reckless disregard of its obligations and duties under the Agreement.
As Operations Agent of the Portfolio, Federated Services Company receives a fee
from the Portfolio, which is computed daily and paid monthly, at an annual rate,
for at least the Portfolio's first year of operations, equal to 0.015% of the
average daily net assets of the Portfolio. If, after the Portfolio's first year
of operations, the average net assets of the Portfolio (excluding net assets
attributable to the Class Y Fund) have not reached $325 million, the Operations
Agent's fee would be increased to an annual rate of 0.035% of the average daily
net assets of the Portfolio. See "Expenses" in the Prospectus.
The Portfolio did not have any operations through February 28, 1998, and
therefore, did not incur any Operations Agency Fees.
Administrative Agent
- -------------------------------------------------------------------------------
Under an administration agreement with the Portfolio Trust ("Administration
Agreement"), IBT Trust Company (Cayman) Ltd. ("IBT (Cayman)") serves as
administrative agent to the Portfolio ("Administrative Agent"). In connection
with its responsibilities as Administrative Agent of the Portfolio, IBT (Cayman)
(i) files and maintains governing documents, registration statements and
regulatory filings; (ii) maintains a telephone line; (iii) approves annual
expense budgets; (iv) authorizes expenses; (v) distributes materials to the
Trustees of the Portfolio Trust; (vi) authorizes dividend distributions; (vii)
maintains books and records; (viii) files tax returns; and (ix) maintains an
investor register.
The Administration Agreement between the Portfolio Trust and IBT (Cayman) (dated
July 28, 1997) with respect to the Portfolio has an initial term of three years.
Thereafter, the Administration Agreement will remain in effect until terminated
by either party thereto. The agreement is terminable by the Portfolio Trust at
any time after the initial term without penalty by a vote of a majority of the
Trustees of the Portfolio Trust, or by a vote of the holders of a "majority of
the outstanding voting securities" (as defined in the 1940 Act) of the Portfolio
Trust (see "Additional Information"). The Administration Agreement is terminable
by the Trustees of the Portfolio Trust or investors of the Portfolio on 60 days'
written notice to IBT (Cayman). The agreement is terminable by IBT (Cayman) on
90 days' written notice to the Portfolio. The Administration Agreement provides
that neither IBT (Cayman) nor its personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or for
any act or omission in its services, except for wilful misfeasance, bad faith or
negligence or reckless disregard of its obligations and duties under the
Agreement.
As Administrative Agent of the Portfolio, IBT (Cayman) receives a fee from the
Portfolio, which may be paid monthly, at the annual rate of $5,000.
The Portfolio did not have any operations through February 28, 1998, and
therefore, did not incur any Administrative Agency fees.
Distributor
- -------------------------------------------------------------------------------
The distribution agreement (the "Distribution Agreement") (dated July 28, 1997)
between the Corporation and Edgewood Services, Inc. (the "Distributor") remains
in effect indefinitely, but only so long as such agreement is specifically
approved at least annually (i) by a vote of the holders of a "majority of the
outstanding voting securities" (as defined in the 1940 Act) of the Funds, or by
the Corporation's Directors, and (ii) by a vote of a majority of the Directors
of the Corporation who are not parties to such Distribution Agreement or
"interested persons" (as defined in the 1940 Act) of the Corporation, cast in
person at a meeting called for the purpose of voting on such approval. The
Distribution Agreement terminates automatically if assigned by either party
thereto and is terminable with respect to the Funds at any time without penalty
by a vote of a majority of the Directors of the Corporation or by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Funds (see "Additional Information"). The Distribution
Agreement is terminable with respect to the Funds by the Corporation's Directors
or shareholders of the Funds on 60 days' written notice to Edgewood. The
Agreement is terminable by the Distributor on 90 days' written notice to the
Corporation.
The Distributor is not obligated to sell any specific number of shares. Under a
plan adopted in accordance with Rule 12b-1 of the 1940 Act on July 28, 1997,
Class B shares of the Class A and Class B Fund are subject to a distribution
plan (the "Distribution Plan") and Class A shares and Class B shares of the
Class A and Class B Fund are subject to a service plan (the "Service Plan").
Under the Distribution Plan, Class B shares will pay a fee to the Distributor in
an amount computed at an annual rate of 0.75% of the average daily net assets of
the Class A and Class B Fund represented by Class B shares to finance any
activity which is principally intended to result in the sale of Class B shares
of the Class A and Class B Fund subject to the Distribution Plan. A report of
the amounts expended pursuant to the Distribution Plan, and the purposes for
which such expenditures were incurred, must be made to the Directors of the
Corporation for review at least quarterly.
The Funds did not have any operations through February 28, 1998, and therefore,
did not incur any distribution fees.
The Distribution Plan provides that it may not be amended to increase materially
the costs which the Fund may bear pursuant to the Distribution Plan without
shareholder approval and that other material amendments of the Distribution Plan
must be approved by the Directors of the Corporation, and by the Directors who
have no direct or indirect financial interest in the operation of the
Distribution Plan or any related agreement and are not "interested persons" (as
defined in the 1940 Act) of the Corporation ("Qualifying Directors"), by vote
cast in person at a meeting called for the purpose of considering such
amendments. While the Distribution Plan is in effect, the selection and
nomination of the Directors of the Corporation has been committed to the
discretion of the Qualifying Directors. The Distribution Plan has been approved,
and is subject to annual approval, by the Directors of the Corporation and the
Qualifying Directors, by vote cast in person at a meeting called for the purpose
of voting on the Distribution Plan. The Qualifying Directors voted to approve
the Distribution Plan at a meeting held on July 28, 1997. The Distribution Plan
is terminable with respect to the Class A and Class B Fund at any time by a vote
of a majority of the Qualifying Directors or by vote of the holders of a
majority of the Shares of the Fund.
Transfer Agent, Custodian and Fund Accountant
- -------------------------------------------------------------------------------
Federated Shareholder Services Company, Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779, serves as the transfer agent and dividend disbursing
agent for the Funds. As Transfer Agent and Dividend Disbursing Agent, Federated
Shareholder Services Company is responsible for maintaining account records
detailing the ownership of Fund shares and for crediting income, capital gains
and other changes in share ownership to shareholder accounts. Investors Bank &
Trust Company, 200 Clarendon Street, Boston, Massachusetts 02116 acts as the
custodian of the Funds' and the Portfolio's assets. Pursuant to the Custodian
Contract with the Portfolio Trust, IBT is responsible for maintaining the books
and records of portfolio transactions and holding portfolio securities and cash.
In the case of foreign assets held outside the United States, IBT employs
various subcustodians who were approved in accordance with the regulations of
the SEC. The Custodian maintains portfolio transaction records. IBT Fund
Services (Canada) Inc., One First Canadian Place, King Street West, Suite 2800,
P.O. Box 231, Toronto, Ontario M5X1C8, provides fund accounting services to the
Funds and the Portfolio including (i) calculation of the daily net asset value
for the Funds and the Portfolio; (ii) monitoring compliance with investment
portfolio restrictions, including all applicable federal and state securities
and other regulatory requirements; and (iii) monitoring the Funds' and
Portfolio's compliance with the requirements applicable to a regulated
investment company under the Code.
The Transfer Agent, Custodian and Fund Accountant each has agreed to waive fees
and/or reimburse expenses with respect to the Class Y Fund for its first year of
operations. See "Expenses" in the Prospectus.
Independent Accountants
- -------------------------------------------------------------------------------
The independent accountants of the Corporation are Price Waterhouse LLP, 1177
Avenue of the Americas, New York, New York 10036. The independent accountants of
the Portfolio Trust are Price Waterhouse, Kaya W.F.G. (Jombi) Mensing 18, P.O.
Box 46, Curacao, Netherlands Antilles. The independent accountants conduct
annual audits of financial statements, assist in the preparation and/or review
of federal and state income tax returns and provide consulting as to matters of
accounting and federal and state income taxation for the Funds or Portfolio, as
the case may be.
Purchase of Shares
- -------------------------------------------------------------------------------
Shares are sold at their net asset value on days the New York Stock Exchange and
Federal Reserve Bank are open for business. The procedure for purchasing Shares
is explained in the Prospectus under "Purchase of Shares."
Conversion to Federal Funds
It is the policy of each Fund to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from shareholders must
be in federal funds or be converted into federal funds before shareholders begin
to earn dividends. Federated Shareholder Services Company acts as the
shareholder's agent in depositing checks and converting them to federal funds.
Redemption of Shares
- -------------------------------------------------------------------------------
The Funds redeems shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after a Fund receives the
redemption request. Redemption procedures are explained in the Funds' Prospectus
under "Redemption of Shares." Although the transfer agent does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
Class B shares redeemed within six years of purchase (determined with reference
to the date of purchase of the Class B shares of the Deutsche Fund from which
the shareholder exchanged) may be subject to a contingent deferred sales charge.
The amount of the contingent deferred sales charge is based upon the amount of
the administrative fee paid at the time of the original purchase by the
Distributor to the financial institution for services rendered, and the length
of time the investor remains a shareholder in the Class A and Class B Fund.
Should Financial Intermediaries elect to receive an amount less than the fee
that is stated in the Fund's Prospectus for servicing a particular shareholder,
the contingent deferred sales charge and/or holding period for that particular
shareholder will be reduced accordingly.
Redemption in Kind
Although the Corporation intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Funds' portfolio. In such a case, the
portfolio instruments to be distributed as redemption proceeds would be valued
in the same way as the Portfolio determines net asset value. The portfolio
instruments will be selected in a manner that the Directors of the Corporation
and Trustees of the Portfolio deem fair and equitable. To the extent available,
such securities will be readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
Systematic Withdrawal Program
The Systematic Withdrawal Program permits the Class A and Class B Fund
shareholders to request withdrawal of a specified dollar amount (minimum $100)
on either a monthly or quarterly basis from accounts with $10,000 minimum at the
time the shareholder elects to participate in the Systematic Withdrawal Program.
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the contingent deferred sales charge may
not exceed 12% annually with reference initially to the value of the Class B
shares upon establishment of the Systematic Withdrawal Program and then as
calculated at the fiscal year end. Amounts that exceed the 12% annual limit for
redemption, as described, will be subject to the contingent deferred sales
charge. In determining the applicability of the contingent deferred sales
charge, the 12-month holding requirement for any new Class B shares received
through an exchange will include the period for which the exchanged Class B
shares were held. However, for purposes of meeting the $10,000 minimum account
value requirement, Class B share account values will not be aggregated.
Exchange of Shares
- -------------------------------------------------------------------------------
An investor may exchange shares from any series of the Deutsche Funds, Inc. (a
"Deutsche Fund") into shares of the same class of any other Deutsche Fund, as
described under "Exchange of Shares" in the Funds' Prospectus. Class A shares,
when exchanged into another Deutsche Fund, may incur a sales load at the time as
required by that Deutsche Fund. For complete information, the prospectus
relating to the Fund into which a transfer is being made should be read prior to
the transfer. Requests for exchange are made in the same manner as requests for
redemptions. See "Redemption of Shares." Shares of the Fund to be acquired are
purchased for settlement when the proceeds from redemption become available. The
Corporation reserves the right to discontinue, alter or limit the exchange
privilege at any time.
Net Asset Value
- -------------------------------------------------------------------------------
The net asset value of each of the Funds' shares is determined each day the New
York Stock Exchange is open for regular trading and the Federal Reserve Bank is
open for business. (As of the date of this Statement of Additional Information,
such Exchange and banks are so open every weekday except for the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day,
Thanksgiving Day and Christmas Day.) This determination of net asset value of
each share of the Funds is made once during each such day as of 3:00 p.m. (U.S.
Eastern time) by subtracting from the value of each Fund's total assets (i.e.,
the value of its investment in the Portfolio and other assets) the amount of its
pro rata share liabilities, including expenses payable or accrued, and dividing
the difference by the number of shares of each share class or Fund outstanding
at the time the determination is made. It is anticipated that the net asset
value of each share class and each Fund will remain constant at $1.00 and,
although no assurance can be given that it will be able to do so on a continuing
basis, the Corporation and the Portfolio Trust employ specific investment
policies and procedures to accomplish this result.
The value of the Portfolio's net assets (i.e., the value of its securities and
other assets less its liabilities, including expenses payable or accrued) is
determined at the same time and on the same days as the net asset value per
share of the Funds is determined. The value of each Fund's investment in the
Portfolio is determined by multiplying the value of the Portfolio's net assets
by the percentage, effective for that day, which represents the Fund's share of
the aggregate beneficial interests in the Portfolio.
The securities held by the Portfolio are valued at their amortized cost.
Pursuant to a rule of the SEC, an investment company may use the amortized cost
method of valuation subject to certain conditions and the determination that
such method is in the best interests of the Funds' shareholders and the
Portfolio's other investors. The use of amortized cost valuations is subject to
the following conditions: (i) as a particular responsibility within the overall
duty of care owed to the Portfolio's investors, the Trustees of the Portfolio
Trust have established procedures reasonably designed, taking into account
current market conditions and the investment objective of its investors, to
stabilize the net asset value as computed; (ii) the procedures include periodic
review by the Trustees of the Portfolio Trust, as they deem appropriate and at
such intervals as are reasonable in light of current market conditions, of the
relationship between the value of the Portfolio's net assets using amortized
cost and the value of the Portfolio's net assets based upon available
indications of market value with respect to such portfolio securities; (iii) the
Trustees of the Portfolio Trust will consider what steps, if any, should be
taken if a difference of more than 1/2 of 1% occurs between the two methods of
valuation; and (iv) the Trustees of the Portfolio Trust will take such steps as
they consider appropriate, such as shortening the average portfolio maturity,
realizing gains or losses, establishing the value of the Portfolio's net assets
by using available market quotations, or reducing the value of interests in the
Portfolio, to minimize any material dilution or other unfair results which might
arise from differences between the two methods of valuation.
Such conditions also generally require that: (i) investments for the Portfolio
be limited to instruments which the Trustees of the Portfolio Trust determine
present minimal credit risks and which are of high quality as determined by any
nationally recognized statistical rating organization that is not an affiliated
person of the issuer of, or any issuer, guarantor or provider of credit support
for, the instrument, or, in the case of any instrument that is not so rated, is
of comparable quality as determined by the Investment Adviser under the general
supervision of the Trustees of the Portfolio Trust; (ii) a dollar-weighted
average portfolio maturity of not more than 90 days be maintained and no
instrument is purchased with a remaining maturity of more than 397 days (792 in
the case of U.S. Government securities); (iii) the Portfolio's available cash
will be invested in such a manner as to reduce such maturity to 90 days or less
as soon as is reasonably practicable, if the disposition of a portfolio security
results in a dollar-weighted average portfolio maturity of more than 90 days;
and (iv) no more than 5% of the Portfolio's total assets may be invested in the
securities of any one issuer (other than U.S. Government securities).
It is expected that the Funds will have a positive net income at the time of
each determination thereof. If for any reason a Fund's net income is a negative
amount, which could occur, for instance, upon default by an issuer of a
portfolio security, the Fund would first offset the negative amount with respect
to each shareholder account from the dividends declared during the month with
respect to those accounts. If and to the extent that negative net income exceeds
declared dividends at the end of the month, the Fund would reduce the number of
outstanding Fund shares by treating each shareholder as having contributed to
the capital of the Fund that number of full and fractional shares in his or her
account which represents his or her share of the amount of such excess. Each
shareholder would be deemed to have agreed to such contribution in these
circumstances by his or her investment in the Fund.
Performance Data
- -------------------------------------------------------------------------------
From time to time, the Funds may quote performance in reports, sales literature
and advertisements published by the Corporation. Current performance information
for the Funds may be obtained by calling the number provided on the cover page
of this Statement of Additional Information. See also "Management of the
Corporation and the Portfolio Trust--Performance Information" in the Prospectus.
Yield
The current and effective yield for each class of Shares of the Funds may be
used from time to time in shareholder reports or other communications to
shareholders or prospective investors. Seven-day current yield is computed by
dividing the net change in account value (exclusive of capital changes) of a
hypothetical pre-existing account having a balance of one share at the beginning
of a seven-day calendar period by the value of that account at the beginning of
that period, and multiplying the return over the seven-day period by 365/7. For
purposes of the calculation, net change in account value reflects the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares, but does not
reflect realized gains or losses or unrealized appreciation or depreciation. In
addition, the Corporation may use an effective annualized yield quotation for
the Funds computed on a compounded basis by adding 1 to the base period return
(calculated as described above), raising the sum to a power equal to 365/7, and
subtracting 1 from the result.
General
The performance of each of the classes of Shares will vary from time to time
depending upon market conditions, the composition of the Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of the Funds' performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in either Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in advertising
the Funds' shares, including appropriate market indices or averages or data from
Lipper Analytical Services, Inc., Micropal, Inc., Ibbotson Associates,
Morningstar Inc., the Dow Jones Industrial Average and other industry
publications.
The performance of the Funds may also be compared to the performance of money
managers as reported in market surveys such as SEI Fund Evaluation Survey (a
leading data base of tax-exempt funds) or mutual funds such as those reported by
Lipper Analytical Services, Morningstar, Micropal, Money Magazine's Fund Watch
or Wiesenberger Investment Companies Service, each of which measures performance
following their own specific and well-defined calculation measures.
The yield should not be considered a representation of the yield of a Fund in
the future since the yield is not fixed. Actual yields will depend on the type,
quality and maturities of the investments held for the Portfolio, changes in
interest rates on investments, and the Fund's expenses during the period.
Yield information may be useful for reviewing the performance of the Funds and
for providing a basis for comparison with other investment alternatives.
However, unlike bank deposits or other investments which pay a fixed yield for a
stated period of time, a Fund's yield does fluctuate, and this should be
considered when reviewing performance or making comparisons.
Economic and Market Information
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effects or expected
effects on the securities markets. Such discussions may take the form of
commentary on these developments by Fund portfolio managers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute.
Portfolio Transactions
- -------------------------------------------------------------------------------
The Adviser for the Portfolio places orders for all purchases and sales of
portfolio securities, enters into repurchase and reverse repurchase agreements
and executes loans of portfolio securities. Fixed-income securities are
generally traded at a net price with dealers acting as principal for their own
account without a stated commission. The price of the security usually includes
a profit to the dealer. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain money market instruments may be purchased directly from an issuer, in
which case no commissions or discounts are paid. From time to time certificates
of deposit may be purchased through intermediaries who may charge a commission
for their services.
The Adviser does not seek profits through short-term trading. However, it may on
behalf of the Portfolio dispose of any portfolio security prior to its maturity
if it believes such disposition is advisable even if this action realizes
profits.
Since brokerage commissions are not normally paid on investments which are made
for the Portfolio, turnover resulting from such investments should not adversely
affect the net asset value of the Portfolio. In connection with portfolio
transactions for the Portfolio, the Adviser intends to seek best price and
execution on a competitive basis for both purchases and sales of securities.
On those occasions when the Adviser deems the purchase or sale of a security to
be in the best interests of the Portfolio as well as other customers, the
Adviser to the extent permitted by applicable laws and regulations, may, but is
not obligated to, aggregate the securities to be sold or purchased with those to
be sold or purchased for other customers in order to obtain best execution,
including lower brokerage commissions, if appropriate. In such event, allocation
of the securities so purchased or sold as well as any expenses incurred in the
transaction are made by the Adviser in the manner it considers to be most
equitable and consistent with its fiduciary obligations to its customers,
including the Portfolio. In some instances, this procedure might adversely
affect the Portfolio.
Deutsche Bank AG or one of its subsidiaries or affiliates may act as one of the
agents of the Portfolio in the purchase and sale of portfolio securities when,
in the judgment of the Adviser, that firm will be able to obtain a price and
execution at least as favorable as other qualified brokers. As one of the
principal brokers for the Portfolio, Deutsche Bank AG may receive brokerage
commissions from the Portfolio.
Taxes
- -------------------------------------------------------------------------------
The following information supplements and should be read in conjunction with the
sections in the Prospectus entitled " Dividends and Distributions" and "Taxes."
United States Taxation
Each Fund intends to qualify and intends to remain qualified as a regulated
investment company (a "RIC") under Subchapter M of the Code. As a RIC, a Fund
must, among other things: (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to loans of stock and securities,
gains from the sale or other disposition of stock, securities or foreign
currency and other income (including but not limited to gains from options,
futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
value of the Fund's total assets is represented by cash, U.S. Government
securities, investments in other RICs and other securities limited in respect of
any one issuer, to an amount not greater than 5% of the Fund's total assets, and
10% of the outstanding voting securities of such issuer and (ii) not more than
25% of the value of its total assets is invested in the securities of any one
issuer (other than U.S. Government securities or the securities of other RICs).
As a RIC, the Fund (as opposed to its shareholders) will not be subject to
federal income taxes on the net investment income and capital gains that it
distributes to its shareholders, provided that at least 90% of its net
investment income and realized net short-term capital gains in excess of net
long-term capital losses for the taxable year is distributed.
To maintain a constant $1.00 per share net asset value, the Trustees may direct
that the number of outstanding shares be reduced pro rata. If this adjustment is
made, it will reflect the lower market value of portfolio securities and not
realized losses.
State and Local Taxes
Each Fund may be subject to state or local taxes in jurisdictions in which the
Fund is deemed to be doing business. In addition, the treatment of the Fund and
its shareholders in those states that have income tax laws might differ from
treatment under the federal income tax laws. For example, a portion of the
dividends received by shareholders may be subject to state income tax.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
The foregoing discussion is based on U.S. federal tax laws in effect on the date
hereof. These laws are subject to change by legislative or administrative
action, possibly with retroactive effect.
The foregoing discussion is a summary only and is not intended as a substitute
for careful tax planning. Prospective investors in shares of the Funds should
consult their own tax advisers as to the tax consequences of investing in such
shares, including the consequences under state, local and other tax laws.
Description of Shares
- -------------------------------------------------------------------------------
The Corporation is an open-end management investment company organized as a
Maryland corporation on May 22, 1997. The Articles of Incorporation currently
permit the Corporation to issue 17,500,000,000 shares of common stock, par value
$0.001 per share, of which 5,000,000,000 shares have been classified as shares
of Deutsche US Money Market Fund and 10,000,000,000 shares have been classified
as shares of Deutsche Institutional US Money Market Fund. The Corporation
currently consists of eleven such series and two classes of shares for each
series except the Class Y Fund, which has only one class of shares.
Shareholders are entitled to one vote for each share held on matters on which
they are entitled to vote. Shareholders in the Corporation do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Corporation may elect all of the Directors of the
Corporation if they choose to do so and in such event the other shareholders in
the Corporation would not be able to elect any Director. The Corporation is not
required and has no current intention to hold meetings of shareholders annually,
but the Corporation will hold special meetings of shareholders when in the
judgment of the Corporation's Directors it is necessary or desirable to submit
matters for a shareholder vote. Shareholders have under certain circumstances
(e.g., upon application and submission of certain specified documents to the
Directors by a specified number of shareholders) the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Directors. Shareholders also have the right
to remove one or more Directors without a meeting by a declaration in writing by
a specified number of shareholders. Shares have no preference, pre-emptive,
conversion or similar rights (except the automatic conversion of Class B Shares
into Class A Shares as discussed in the Prospectus under "Purchase of Shares").
Shares, when issued, are fully paid and non-assessable.
Stock certificates are not issued by the Corporation except upon written
request. No certificates will be issued for fractional shares.
The Articles of Incorporation of the Corporation contain a provision permitted
under Maryland Corporation Law which under certain circumstances eliminates the
personal liability of the Corporation's Directors to the Corporation or its
shareholders.
The Articles of Incorporation and the By-Laws of the Corporation provide that
the Corporation indemnify the Directors and officers of the Corporation to the
full extent permitted by the Maryland Corporation Law, which permits
indemnification of such persons against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Corporation. However, nothing in the Articles of Incorporation
or the By-Laws of the Corporation protects or indemnifies a Director or officer
of the Corporation against any liability to the Corporation or its shareholders
to which he would otherwise be subject by reason of willful wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Interests in the Portfolio have no preference, preemptive, conversion or similar
rights and are fully paid and non-assessable. The Portfolio Trust is not
required to hold annual meetings of investors, but will hold special meetings of
investors when, in the judgment of its Trustees, it is necessary or desirable to
submit matters for an investor vote. Each investor is entitled to a vote in
proportion to the share of its investment in the Portfolio.
Additional Information
- -------------------------------------------------------------------------------
As used in this Statement of Additional Information and the Prospectus, the term
"majority of the outstanding voting securities" (as defined in the 1940 Act)
currently means the vote of (i) 67% or more of the outstanding voting securities
present at a meeting, if the holders of more than 50% of the outstanding voting
securities are present in person or represented by proxy; or (ii) more than 50%
of the outstanding voting securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited financial
statements and annual reports containing financial statements audited by
independent auditors.
A shareholder's right to receive payment with respect to any redemption may be
suspended or the payment of the redemption proceeds postponed: (i) during
periods when the New York Stock Exchange or foreign stock exchange is closed for
other than weekends and holidays or when regular trading on such Exchange is
restricted as determined by the SEC by rule or regulation, (ii) during periods
in which an emergency exists which causes disposal of, or evaluation of the net
asset value of, portfolio securities to be unreasonable or impracticable, or
(iii) for such other periods as the SEC may permit.
Telephone calls to a Fund, the Transfer Agent, the Distributor, or Financial
Intermediaries with respect to shareholder servicing may be tape recorded. With
respect to the securities offered hereby, this Statement of Additional
Information and the Prospectus do not contain all the information included in
the Corporation's Registration Statement filed with the SEC under the 1933 Act
and the Corporation's and the Portfolio Trust's Registration Statement filed
under the 1940 Act. Pursuant to the rules and regulations of the SEC, certain
portions have been omitted. The Registration Statement including the exhibits
filed therewith may be examined at the office of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and the
Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
Bond, Note, and Commercial Paper Ratings
- -------------------------------------------------------------------------------
Moody's Investors Service, Inc. ("Moody's") Bond Ratings
Aaa--Bonds rated Aaa are judged to be of the "best quality." Aa1 is the rating
directly below Aaa, and then continues to Aa2, Aa3 to show relative strength
within the rating category.
Standard & Poor's Corporation ("S&P")
AAA--The AAA rating is the highest rating assigned to debt obligations and
indicates an extremely strong capacity to pay principal and interest.
Note and Variable Rate Investment Ratings
Moody's--MIG-1. Notes rated MIG-1 are judged to be of the best quality, enjoying
strong protection from established cash flow of funds for their services or from
established and broad-based access to the market for refinancing or both.
S&P--SP-1. SP-1 denotes a very strong or strong capacity to pay principal and
interest. Issues determined to possess overwhelming safety characteristics are
given a plus (+) designation (SP-1+).
Corporate Commercial Paper Ratings
Moody's--Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Prime-1 indicates highest quality repayment capacity of
rated issue.
S&P--Commercial Paper ratings are a current assessment of the likelihood of
timely payment of debts having an original maturity of no more than 365 days.
Issues rated A-1 have the greatest capacity for timely payment. Issues rated "A-
1+" are those with an "overwhelming degree of credit protection."
Other Considerations
Among the factors considered by Moody's in assigning bond, note and commercial
paper ratings are the following: (i) evaluation of the management of the issuer;
(ii) economic evaluation of the issuer's industry or industries and an appraisal
of speculative-type risks which may be inherent in certain areas; (iii)
evaluation of the issuer's products in relation to competition and customer
acceptance; (iv) liquidity; (v) amount and quality of long-term debt; (vi) trend
of earnings over a period of 10 years; (vii) financial strength of a parent
company and the relationships which exist with the issuer; and (viii)
recognition by management of obligations which may be present or may arise as a
result of public interest questions and preparations to meet such obligations.
Among the factors considered by S&P in assigning bond, note and commercial paper
ratings are the following: (i) trend of earnings and cash flow with allowances
made for unusual circumstances, (ii) stability of the issuer's industry, (iii)
the issuer's relative strength and position within the industry and (iv) the
reliability and quality of management.
Deutsche Funds, Inc.
Statement of Assets & Liabilities
September 19, 1997
<TABLE>
<CAPTION>
Deutsche Deutsche
US Institutional US
Money Market Money Market
Fund Fund
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in corresponding Deutsche Portfolio $ 100 $ 100
Deferred organization expenses (Note 1) 5,022 5,022
- ---------------------------------------------------------------------------------
Total Assets 5,122 5,122
- ---------------------------------------------------------------------------------
LIABILITIES
Organization expenses payable 5,022 5,022
- ---------------------------------------------------------------------------------
Total Liabilities 5,022 5,022
- ---------------------------------------------------------------------------------
Net Assets $ 100 $ 100
=================================================================================
Shares outstanding ($.001 par value) 100 100
=================================================================================
Net Asset Value per share $ 1.00 $ 1.00
=================================================================================
COMPOSITION OF NET ASSETS
Paid in capital 100 100
- ---------------------------------------------------------------------------------
Net Assets, September 19, 1997 $ 100 $ 100
=================================================================================
</TABLE>
See Notes to Financial Statements
Deutsche Funds, Inc.
Notes to Financial Statement
September 19, 1997
- -------------------------------------------------------------------------------
Note 1--General
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (the "Funds"). The accompanying
financial statement and notes relate to the Deutsche US Money Market Fund and
Deutsche Institutional US Money Market Fund, (each a "Fund" and collectively the
"Money Market Funds") each of which is, in effect, a separate mutual fund.
Each of the Money Market Funds will seek to achieve their respective investment
objective by investing substantially all of their assets in the US Money Market
Portfolio (US Dollar) (the "Portfolio", one of the ten portfolios constituting
the Deutsche Portfolios (the "Portfolio Trust")) having substantially the same
investment objective of each of the Money Market Funds.
The Company has not retained the services of an investment adviser since the
Money Market Funds will seek to achieve their investment objective by investing
all of their investable assets in the Portfolio. The Portfolio is managed by
Deutsche Fund Management, Inc. ("DFM"), an indirect subsidiary of Deutsche Bank
AG. Federated Services Company intends to serve as Administrator to the Money
Market Funds and Federated Shareholder Services Company intends to serve as
transfer agent and dividend disbursing agent to the Money Market Funds. Edgewood
Services, Inc. ("Edgewood") intends to serve as distributor to the Money Market
Funds (the "Distributor").
Each Fund will absorb daily a pro-rata portion of the Portfolio's income and
expenses, including fees paid to DFM and the amortization of organization
expenses. Additionally, the Deutsche US Money Market Fund offers two classes of
shares to investors, Class A and Class B. Both Class A shares and Class B shares
are subject to a Service Plan and Class B shares are also subject to a
Distribution Plan. Each Class will bear their respective portion of the expenses
under the Service and Distribution Plan.
The Company has had no operations through September 19, 1997, other than those
relating to organizational matters and the sale of 100 Class A shares for $100
by each Fund to Edgewood. Organization expenses incurred in connection with the
organization and initial registration of the Company will be paid initially by
DFM and reimbursed by the Funds. Such organization expenses have been deferred
and will be amortized ratably over a period of sixty months from the
commencement of operations of the Funds. The amount paid by each Fund on any
redemption by Edgewood (or any subsequent holder) of such Fund's initial shares
will be reduced by the pro-rata portion of any unamortized organization expenses
of the Money Market Funds.
Note 2--Commitments and Related Agreements
The Company intends to retain the services of Federated Services Company as
Administrator. Under the Administration Agreement, Federated Services Company
will assist in the operations of the Funds subject to the direction and control
of the Board of Directors of the Company. For its services, Federated Services
Company will receive a fee from each Fund, which is computed daily and paid
monthly, at an annual rate of 0.045% of each Fund's average daily net assets. If
after the first year of operations of each Fund, the average net assets of the
Portfolio have not reached $325 million, the Administrator's fee would be
increased to an annual rate of 0.065% of the average daily net assets of each
Fund up to $200 million and 0.0525% of such assets in excess of $200 million for
the Fund's then current fiscal year.
The Company intends to enter into a distribution agreement with Edgewood.
Edgewood will serve as principal distributor for shares of the Funds. The
Company intends to adopt a Service and Distribution Plan in accordance with Rule
12b-1 of the 1940 Act whereby Class B shares are subject to the Distribution
Plan and Class A shares and Class B shares are subject to the Service Plan.
Under the Distribution Plan, Class B shares of Deutsche US Money Market Fund
will pay a fee to the Distributor in an amount computed at an annual rate of
0.75% of the average daily net assets of the Deutsche US Money Market Fund
represented by Class B shares to finance any activity which is principally
intended to result in the sale of Class B shares of the Deutsche US Money Market
Fund.
Federated Shareholder Services Company will serve as the transfer agent and
dividend disbursing agent for the Funds. Federated Services Company and
Federated Shareholder Services Company are both affiliated with Edgewood. IBT
Fund Services (Canada) Inc. will provide fund accounting services to the Funds.
DFM together with IBT Fund Services (Canada) Inc., its affiliates, and other
service providers have voluntarily agreed that they will waive their fees and/or
reimburse each Fund through at least one year from the Money Market Funds'
commencement of operations, to the extent necessary to maintain each Fund's
total operating expenses (which includes expenses of the Fund and its pro-rata
portion of expenses of the corresponding Portfolio, but does not cover
extraordinary expenses during the period) at not more than 0.20% of the average
daily net assets of Deutsche Institutional US Money Market Fund, and at not more
than 0.55% and 1.30% of the average daily net assets of Class A shares and Class
B shares, respectively, of the Deutsche US Money Market Fund.
Report of Independent Accountants
- -------------------------------------------------------------------------------
To the Shareholder and Board
of Directors of Deutsche Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Deutsche US Money
Market Fund and Deutsche Institutional US Money Market Fund (two of eleven
separate funds constituting Deutsche Funds, Inc., hereafter referred to as the
"Funds") at September 19, 1997, in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Funds'
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this financial statement
in accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
September 22, 1997
Deutsche Portfolios
Statement of Assets & Liabilities
September 19, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
US
Money Market
Portfolio (US Dollar)
- --------------------------------------------------------------------
<S> <C>
ASSETS:
Cash $ 210
Deferred organization expenses (Note 1) 52,957
- --------------------------------------------------------------------
Total Assets 53,167
- --------------------------------------------------------------------
LIABILITIES
Organization expenses payable 52,957
- --------------------------------------------------------------------
Total Liabilities 52,957
====================================================================
Net Assets $ 210
====================================================================
</TABLE>
See Notes to Financial Statement.
Deutsche Portfolios
Notes to Financial Statement
September 19, 1997
- -------------------------------------------------------------------------------
Note 1--General
Deutsche Portfolios ("Portfolio Trust") was organized on June 20, 1997, as a
business trust under the laws of the State of New York and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Portfolio Trust currently consists of ten
separate investment series (the "Portfolios"), each of which is, in effect, a
separate mutual fund. The accompanying financial statement and notes relate to
the US Money Market Portfolio (US Dollar) (the "Portfolio").
Deutsche Fund Management, Inc. ("DFM"), an indirect subsidiary of Deutsche Bank
AG, intends to serve as investment manager (the "Manager") to the Portfolio
Trust. Investors Bank & Trust Company intends to serve as the custodian to the
Portfolio Trust. IBT Fund Services (Canada) Inc. intends to serve as the fund
accounting agent to the Portfolio Trust.
The Declaration of Trust of the Portfolios permits its Trustees to issue
interests in the Portfolio Trust. The Portfolio has had no operations through
September 19, 1997, other than those relating to organizational matters,
including the issuance of the following initial interests ("Initial Interests")
to the Deutsche US Money Market Fund and the Deutsche Institutional US Money
Market Fund, two of the eleven funds constituting Deutsche Funds, Inc. (each a
"Fund" and collectively the "Funds"), and Edgewood Services Inc. ("Edgewood"),
distributor of the Funds:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Initial Interest Initial Interest
Portfolio to Deutsche Fund Amount to Edgewood Amount
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Money Market
Portfolio (US Dollar) Deutsche US Money Market Fund $100 Edgewood $10
US Money Market
Portfolio (US Dollar) Deutsche Institutional
US Money Market Fund $100
</TABLE>
The investment objective of the Portfolio is primarily to achieve as high a
level of current income as is consistent with the preservation of capital and
the maintenance of liquidity.
Organization expenses incurred in connection with the organization and initial
registration of the Portfolio Trust will be paid initially by DFM and reimbursed
by the Portfolios. Such organization expenses have been deferred and will be
amortized ratably over a period of sixty months from the commencement of
operations of the Portfolios. Any amount received by the Portfolio from its
corresponding Fund as a result of a redemption by Edgewood of any of its Initial
Interests in the Portfolio will be applied so as to reduce the amount of
unamortized organization expenses. The amount paid by the Portfolio Trust on any
withdrawal by the Funds of all or part of its Initial Interests in the Portfolio
will be reduced by a portion of any unamortized organization expenses of the
Portfolio, determined by the proportion of the amount of the Initial Interest
withdrawn to the aggregate amount of the Initial Interests in the Portfolio then
outstanding after taking into account any prior withdrawals of any portion of
the Initial Interests in the Portfolio.
Note 2--Commitments and Related Agreements
The Portfolio Trust intends to retain the services of DFM as Manager. DFM
retains overall responsibility for supervision of the investment management
program for the Portfolio but has delegated the day-to-day management of the
investment operations of the Portfolio to an Adviser. As compensation for the
services rendered by DFM under the investment management agreement ("Management
Agreement") with the Portfolio Trust with respect to the Portfolio, DFM receives
a fee from the Portfolio, which is computed daily and paid monthly, equal to
0.15% of the average daily net assets of the Portfolio on an annualized basis
for the Portfolio's then-current fiscal year. DFM has retained the services of
Deutsche Morgan Grenfell Investment Management, Inc. ("DMGIM") as the investment
adviser. The adviser is an indirect subsidiary of Deutsche Bank AG. As
compensation for its services DMGIM receives a fee paid from DFM which is based
on the average daily net assets of the Portfolio.
The Portfolio Trust intends to retain Federated Services Company as Operations
Agent to the Portfolios. As Operations Agent of the Portfolios, Federated
Services Company will receive a fee from the Portfolio, which is computed daily
and paid monthly, at the annual rate of 0.015% of the average daily net assets
of the Portfolio. If after the first year of operations, the average net assets
of the Portfolio have not reached $325 million, the Operations Agent's fee would
be increased to an annual rate of 0.035% of the average daily net assets of the
Portfolio. Federated Services Company is affiliated with Edgewood.
The Portfolio Trust intends to enter into an administrative agreement with IBT
Trust Company (Cayman) Ltd. ("IBT (Cayman)"). As Administrative Agent of the
Portfolios, IBT (Cayman) will receive a fee from the Portfolio, which is
computed daily and paid monthly, at the annual rate of 0.025% of the average
daily net assets of the Portfolio.
Report of Independent Accountants
- -------------------------------------------------------------------------------
To the Initial Interest Holders and Board
of Trustees of Deutsche Portfolios
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of US Money Market
Portfolio (US Dollar) (one of ten separate portfolios constituting Deutsche
Portfolios, hereafter referred to as the "Portfolios") at September 19, 1997, in
conformity with generally accepted accounting principles. This financial
statement is the responsibility of the Portfolios' management; our
responsibility is to express an opinion on this financial statement based on our
audit. We conducted our audit of this financial statement in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statement is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse
Price Waterhouse
Curacao, Netherlands Antilles
September 22, 1997
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by the
Corporation or the Distributor. The Prospectus and this Statement of Additional
Information do not constitute an offer by the Funds or by the Distributor to
sell or solicit any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Funds or the
Distributor to make such offer in such jurisdictions.
PART C: OTHER INFORMATION.
Item 24. Financial Statements and Exhibits.
(a) Financial Statements: Filed in Part A.
(b) Exhibits:
1 -- (a) Articles of Amendment and Restatement. (3)
(b) Articles of Amendment.(3)
2 -- By-Laws of the Registrant.(1)
3 -- Not Applicable.
4 -- (a) Class A Specimen certificate. (5)
(b) Class B Specimen certificate. (5)
Additional rights of security holders are set forth
in Articles Fifth and Twelfth of the Registrant's
Articles of Incorporation and Articles I and V of
the Registrant's By-Laws, which are filed as
Exhibits 1 and 2, respectively, to this Registration
Statement.
5 -- Investment Advisory Agreement.(3)
(a) Investment Management Agreement (5)
6 -- (a) Conformed copy of Distribution Agreement. +
(b) Conformed copy of Mutual Funds Sales and Service
Agreement. +
7 -- Not Applicable.
8 -- (i) Conformed copy of Custodian Agreement between
Investors Bank and Trust Company and the Registrant.+
(ii) Custodian Agreement between Deutsche Portfolios and
Investors Bank and Trust Company.(3)
9 -- (a) (i) Conformed copy of Master Agreement for
Administration Services
between Federated Services Company and the
Registrant. +
(a)(ii) Administration Agreement between Deutsche
Portfolios and IBT Trust Company (Cayman) Ltd.(3)
(b) (i) Conformed Copy of Fund Accounting Agreement between
IBT Fund Services
(Canada) Inc. and the Registrant. +
(b)(ii) Fund Accounting Agreement between Deutsche
Portfolios and IBT Funds Services (Canada) Inc.(3)
(c) Conformed copy of Services Agreement. +
(d) Operations Agency Agreement.(4)
10 -- Opinion of Counsel (including consent). (5)
11 -- (a) Independent auditors' consent (Deutsche Top 50 World
Fund, Deutsche Top 50 Europe Fund; Deutsche Top 50 Asia Fund;
Deutsche Top 50 US Fund; Deutsche European Mid-Cap Fund; Deutsche
German Equity Fund; Deutsche Japanese Equity Fund; Deutsche Global
Bond Fund; Deutsche European Bond Fund). +
(b) Independent auditors' consent (Deutsche US Money
Market Fund and
Deutsche Institutional US Money Market Fund). +
(c) Independent auditors' consent (Deutsche US Money
Market Portfolio and Deutsche Institutional US Money Market
Portfolio). +
(d) Independent auditors' consent (Deutsche Top 50
World Portfolio, Deutsche Top 50 Europe Portfolio; Deutsche Top 50
Asia Portfolio; Deutsche Top 50 US Portfolio; Deutsche European
Mid-Cap Portfolio; Deutsche German Equity Portfolio; Deutsche
Japanese Equity Portfolio; Deutsche Global Bond Portfolio; Deutsche
European Bond Portfolio). +
12 -- Not Applicable.
13 -- Investment representation letters from initial
shareholders. (5)
14 -- Not Applicable.
15 -- Conformed copy of Distribution and Services Plan. +
16 -- (a) Schedule for Computation of Fund Performance Data -
Total Return (Deutsche Top 50 World Fund, Deutsche Top 50 Europe
Fund; Deutsche Top 50 Asia Fund; Deutsche Top 50 US Fund; Deutsche
European Mid-Cap Fund; Deutsche German Equity Fund; Deutsche
Japanese Equity Fund; Deutsche Global Bond Fund; Deutsche European
Bond Fund). +
(b) Schedule for Computation of Fund Performance
Data - Yield (Deutsche Global
Bond Fund, Deutsche European Bond Fund). +
17-- Financial Data Schedules. +
18 -- Multiple Class (Rule 18f-3) Plan.(3)
99 -- Power of Attorney. (5)
- - ---------------------
+ All exhibits have been filed electronically.
(1) Incorporated by reference to the Registrant's registration statement on Form
N-1A as filed with the Commission on May 23, 1997.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's registration statement on Form N-1A as filed with the
Commission on August 1, 1997.
(3) Incorporated by reference to Pre-Effective Amendment No. 4 to the
Registrant's registration statement on Form N-1A as filed with the
Commission on September 18, 1997.
(4) Incorporated by reference to Pre-Effective Amendment No. 5 to the
Registrant's registration statement on Form N-1A as filed with the
Commission on September 19, 1997.
(4) Incorporated by reference to Pre-Effective Amendment No. 6 to the
Registrant's registration statement on Form N-1A as filed with the
Commission on September 23, 1997.
Item 25. Persons Controlled by or under Common Control with
Registrant
Immediately prior to the initial public offering of the shares of the
Registrant, Edgewood Services, Inc., a New York corporation will own
all of the outstanding shares of Deutsche Top 50 World, Deutsche Top
50 Europe, Deutsche Top 50 Asia, Deutsche Top 50 US, Deutsche
European Mid-Cap Fund, Deutsche German Equity Fund, Deutsche Japanese
Equity Fund, Deutsche Global Bond Fund, Deutsche European Bond Fund,
Deutsche US Money Market Fund and Deutsche Institutional US Money
Market Fund. Edgewood Services, Inc. may, therefore, be deemed to
control the Registrant. The following entities may therefore be
deemed to be under common control with the Registrant:
Advanced Information Services, a Delaware business trust Federated
Bank and Trust, a New Jersey bank Federated Administrative Services,
a Delaware business trust Federated Shareholder Services Company, a
Delaware business trust Retirement Plan Services Company of America,
a Delaware business trust Federated Administrative Services, Inc., a
Pennsylvania corporation FS Holdings Inc., a Delaware corporation
Federated Services Company, a Pennsylvania corporation FII Holdings
Inc., a Delaware corporation Federated Shareholder Services, a
Delaware business trust FFSI Insurance Agency Inc., a Massachusetts
corporation Federated Investors Insurance Inc., a Pennsylvania
corporation Federated International Management Limited, an Irish
limited liability company Federated Global Research Corp., a Delaware
corporation Federated Investment Counseling, a Delaware business
trust Federated Research, a Delaware business trust Federated
Management, a Delaware business trust Federated Research Corp., a
Maryland corporation Federated Advisers, a Delaware business trust
Federated Investors Building Corp., a Pennsylvania corporation
Federated Financial Services, Inc., a Pennsylvania corporation
Federated Securities Corp., a Pennsylvania corporation Exchange Fund
Research Corp., a Pennsylvania corporation Federated Investors
Management Company, a Pennsylvania corporation Federated Investors,
Inc., a Pennsylvania corporation
Each listed entity is wholly owned by Federated Investors, a Delaware business
trust. Each listed entity is included in the consolidated financial statements
of Federated Investors.
Item 26. Number of Holders of Securities.
Title of Class Number of Record Holders
Common Stock Class A (as of March 20, 1998)
Deutsche European Mid-Cap Fund 22
Deutsche German Equity Fund 14
Deutsche Japanese Equity Fund 9
Deutsche Global Bond Fund 15
Deutsche European Bond Fund 8
Deutsche Top 50 World 48
Deutsche Top 50 Europe 15
Deutsche Top 50 Asia 15
Deutsche Top 50 US 51
Deutsche US Money Market Fund 26
Title of Class Number of Record Holders
Common Stock Class B (as of March 20, 1998)
Deutsche European Mid-Cap Fund 5
Deutsche German Equity Fund 8
Deutsche Japanese Equity Fund 4
Deutsche Global Bond Fund 4
Deutsche European Bond Fund 4
Deutsche Top 50 World 4
Deutsche Top 50 Europe 4
Deutsche Top 50 Asia 4
Deutsche Top 50 US 5
Deutsche US Money Market Fund 4
Title of Class Number of Record Holders
Common Stock Class Y (as of March 20, 1998)
Deutsche Institutional US Money Market Fund 4
Item 27. Indemnification
Reference is made to Article EIGHTH of Registrant's Articles of
Amendment and Restatement.
Registrant, its Directors and officers, and persons affiliated with
them are insured against certain expenses in connection with the defense of
actions, suits or proceedings, and certain liabilities that might be imposed as
a result of such actions, suits or proceedings.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to Directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer of controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
Deutsche Fund Management, Inc. ("DFM"), DWS International Portfolio Management
GmbH ("DWS-IPM") and Deutsche Morgan Grenfell Investment Management Inc.
("DMGIM") are each indirect subsidiaries of Deutsche Bank AG.
Deutsche Fonds Holding GmbH ("DFH"), a holding company organized under German
law, 93% owned by Deutsche Bank AG; sole shareholder of DFM (since 1/97); sole
shareholder of DWS-IPM (since 5/97).
Deutsche Bank AG, a publicly-held global financial institution, trading on the
Frankfurt Stock Exchange); sole shareholder of DFH (since 9/94).
Deutsche Bank North America Holding Corp. ("DBNAH"), a holding company organized
under US law, 100% owned by Deutsche Bank AG; sole shareholder of Deutsche Bank
U.S. Financial Markets Holding Corporation.
Deutsche Bank U.S. Financial Markets Holding Corporation, a holding company
organized under US law, 100% owned by DBNAH; sole shareholder of DMGIM.
Brian A. Lee, President and Managing Director of DFM (since 1/97); President and
Chief Operating Officer of Deutsche Bank Trust Company ("DBTC")(prior to 1997).
Christian Strenger, Chairman of the Board of Directors of DFM (since 1/97);
Managing Director/Spokesman of DFH (since 9/94); Managing Director/Spokesman of
DWS-IPM (since 5/97); Managing Director/Spokesman of DWS Deutsche Gesellschaft
fuer Wertpapiersparen mbH ("DWS-DGW)(since 8/91).
Udo Behrenwaldt, Director of DFM (since (5/97); Managing Director of DFH (since
9/94); Manager Director of DWS-IPM (since 5/97); Executive Director of DB
Investment Management, S.A. (since 7/87); Managing Director of DWS-DGW (since
11/75).
Holger Naumann, Director of DFM (since 1/97); Head of Participations at DWS-DGW
(since 12/95); Group Strategy Department at Deutsche Bank AG (prior to 12/95).
Bernd-Albrecht von Maltzan, Director of DFM (since 5/97); Divisional Board
Member of Deutsche Bank AG (since 7/96); Managing Director of Deutsche Morgan
Grenfell in Frankfurt and London (prior to 7/96).
Michael C. Lowengrub, Treasurer of DFM (since 1/97); Treasurer of DBTC (since
4/95); Director and Comptroller - Private Banking at Deutsche Bank AG-New York
Branch (since 10/92).
Thomas A. Curtis, Secretary of DFM (since 1/97); Secretary of CB Management
Corp. (since 2/96); Director and Counsel of Deutsche Bank AG-New York Branch
(since 7/95).
Axel-Guenther Benkner, Managing Director of DWS-IPM (since 5/97); Managing
Director of DFH (since 9/94); Managing Director of Deutsche
Vermoegensbildungsgesellschaft mbH (since 12/90); Managing Director of DWS-DGW
(since 2/91).
Heinz-Wilheim Fesser, Senior Portfolio Manager of DWS-IPM (since 5/97); Fixed
Income-Global at DWS-DGW (since 12/??).
Klaus Kaldmorgen, Senior Portfolio Manager of DWS-IPM (since 5/97);
Equities-Global at DWS-DGW (since 12/??).
Klaus Martini, Senior Portfolio Manager of DWS-IPM (since 6/97); Head of
Equities - Europe at DWS-DGW (since 7/84).
Elisabeth Weisenhorn, Senior Portfolio Manager of DWS-IPM (since 6/97); Head of
Equities - Germany at DWS-DGW (since 11/85).
Reinhold Volk, Chief Financial Officer of DWS-IPM (since 6/97); Head of
Controlling at DWS-DGW (since 10/86).
Mathias Geuckler, Chief Compliance Officer of DWS-IPM (since 6/97), Chief
Compliance Officer of DWS-DGW (since 11/92).
Gerhard Seifried, Chief Operations Officer of DWS-IPM (since 6/97); Head of Fund
Administration at DWS-DGW (since 10/85).
Guy Richard Stamberger, President, Chief Executive Officer and Director of DMGIM
(since 10/94); Director of DBTC (since 4/95); Managing Director of Deutsche Bank
Securities Corporation (prior to 10/94).
David Alan Zornitsky, Secretary and Treasurer of DMGIM (since 10/94); Assistant
Vice President at Deutsche Bank Securities Corporation (prior to 10/94).
Item 29. Principal Underwriters.
(a) Edgewood Services, Inc. ("Edgewood") the Distributor
for shares of the Registrant, also acts as principal
underwriter for the following open-end investment
companies: Excelsior Institutional Trust (formerly,
UST Master Funds, Inc.), Excelsior Tax-Exempt Funds,
Inc. (formerly, UST Master Tax-Exempt Funds, Inc.),
Excelsior Institutional Trust, FTI Funds, FundManager
Portfolios, Marketvest Funds, Marketvest Funds, Inc.,
Old Westbury Funds, Inc., BT Advisor Funds, BT
Pyramid Funds, BT Investment Funds and BT
Institutional Funds.
(b) Set forth below are the names and positions of each
Director and officer of Edgewood. The principal
business address of these individuals is Federated
Investors Tower, Pittsburgh, PA 15222. Unless
otherwise specified, no officer or Director of
Edgewood serves as an officer or Director of the
Registrant.
Position and Offices with Position and Offices
Name Edgewood with the Registrant
- - ------------- --------------------------- --------------------
Lawrence Caracciolo Director, President, --
Edgewood Services, Inc.
Arthur L. Cherry Director, --
Edgewood Services, Inc.
J. Christopher Donohue Director, --
Edgewood Services, Inc.
Thomas P. Sholes Director, --
Edgewood Services, Inc.
Ronald M. Petnuch Vice President, --
Edgewood Services, Inc.
Thomas P. Schmitt Vice President, --
Edgewood Services, Inc.
Ernest L. Linane Assistant Vice President, --
Edgewood Services, Inc.
S. Elliot Cohan Secretary, --
Edgewood Services, Inc.
Thomas J. Ward Assistant Secretary, --
Edgewood Services, Inc.
Kenneth W. Pegher, Jr. Treasurer, --
Edgewood Services, Inc.
(c) Not Applicable.
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained at the offices of:
Deutsche Funds, Inc.
2nd Federated Square
Pittsburgh, PA 15222
Edgewood Services, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
(distributor)
Federated Services Company
Federated Investors Tower
Pittsburgh, PA 15222-3779
(administrator)
Federated Shareholder Services Company
Federated Investors Tower
Pittsburgh, PA 15222-3779
(transfer agent)
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
(Custodian)
IBT Fund Services (Canada) Inc.
One First Place
King Street West, Suite 2800
P.O. Box 231
Toronto, Ontario M5X1C8
(Fund Accountant)
Item 31. Management Services.
Other than as set forth under the caption "Management of the
Corporation and the Portfolio Trust" in the Prospectus constituting Part A of
the Registration Statement, Registrant is not a party to any management-related
service contract.
Item 32. Undertakings.
(a) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
the registration statement to be signed on its behalf by the undersigned,
thereto duly authorized in New York, New York on the 13th day of April, 1998.
DEUTSCHE FUNDS, INC.
By /S/ BRIAN A. LEE
Brian A. Lee
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated above.
Signature Title
EDWARD C. SCHMULTS* Director
Edward C. Schmults
ROBERT A. WADSWORTH* Director
Robert A. Wadsworth
WERNER WALBROEL* Director
Werner Walbroel
G. RICHARD STAMBERGER* Director
G. Richard Stamberger
CHRISTIAN STRENGER* Director
Christian Strenger
JOSEPH E. CHEUNG* Treasurer
Joseph E. Cheung
*By: /S/ BRIAN A. LEE
Brian A. Lee
as Attorney-in-Fact pursuant to a
Power of Attorney filed previously.
<PAGE>
SIGNATURES
Deutsche Portfolios has duly caused this Post-effective Amendment to the
Registration Statement on Form N-1A of Deutsche Funds, Inc. (File No. 333-7008)
to be signed on its behalf by the undersigned, thereto duly authorized, in
Frankfurt, Germany on the 13th day of April, 1998.
DEUTSCHE PORTFOLIOS
By /S/CHRISTIAN STRENGER
Christian Strenger
This Post-effective Amendment to the Registration Statement on Form N-1A of
Deutsche Funds, Inc. (File No. 333-7008) has been signed below by the following
persons in the capacities indicated on the date indicated above.
Signature Title
EDWARD C. SCHMULTS* Trustee
Edward C. Schmults
ROBERT A. WADSWORTH* Trustee
Robert A. Wadsworth
WERNER WALBROEL* Trustee
Werner Walbroel
G. RICHARD STAMBERGER* Trustee
G. Richard Stamberger
/S/CHRISTIAN STRENGER Trustee
Christian Strenger
JOSEPH E. CHEUNG* Treasurer
Joseph E. Cheung
*By: /S/CHRISTIAN STRENGER
Christian Strenger
as Attorney-in-Fact pursuant to a
Power of Attorney filed herewith.
Exhibit 16(a) under Form N-1A
Exhibit 99 under Item 601/Reg.S-K
DEUTSCHE FUNDS, INC.
DEUTSCHE TOP 50 WORLD - CLASS A
TOTAL RETURN CALCULATION FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
TO FEBRUARY 28, 1998(A)
Formula P(1+T) = ERV
Net Asset Value $13.47
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,077.60 = ERV
Period from 10/02/97 to 02/28/98 = - = n
(non-annualized)
TOTAL RETURN FOR THE PERIOD 7.76% = T
(a) commencement of operations: 10/02/97
DEUTSCHE FUNDS, INC.
DEUTSCHE TOP 50 EUROPE - CLASS A
TOTAL RETURN CALCULATION FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS TO
FEBRUARY 28, 1998(A)
Formula P(1+T) = ERV
Net Asset Value $13.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,071.20 = ERV
Period from 10/02/97 to 02/28/98 = - = n
(non-annualized)
TOTAL RETURN FOR THE PERIOD 7.12% = T
(a) commencement of operations: 10/02/97
DEUTSCHE FUNDS, INC.
DEUTSCHE TOP 50 ASIA - CLASS A
TOTAL RETURN CALCULATION FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS TO
FEBRUARY 28, 1998(A)
Formula P(1+T) = ERV
Net Asset Value $11.69
Initial Investment $1,000.00 = P
Ending Redeemable Value $935.20 = ERV
Period from 10/14/97 to 02/28/98 = - = n
(non-annualized)
TOTAL RETURN FOR THE PERIOD -6.48% = T
(a) commencement of operations: 10/14/97
DEUTSCHE FUNDS, INC.
DEUTSCHE TOP 50 US - CLASS A
TOTAL RETURN CALCULATION FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS TO
FEBRUARY 28, 1998(A)
Formula P(1+T) = ERV
Net Asset Value $13.94
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,115.24 = ERV
Period from 10/02/97 to 02/28/98 = - = n
(non-annualized)
TOTAL RETURN FOR THE PERIOD 11.52% = T
(a) commencement of operations: 10/02/97
DEUTSCHE FUNDS, INC.
DEUTSCHE EUROPEAN MID-CAP FUND - CLASS A
TOTAL RETURN CALCULATION FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS TO
FEBRUARY 28, 1998(A)
Formula P(1+T) = ERV
Net Asset Value $13.19
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,055.23 = ERV
Period from 10/17/97 to 02/28/98 = - = n
(non-annualized)
TOTAL RETURN FOR THE PERIOD 5.52% = T
(a) commencement of operations: 10/17/97
DEUTSCHE FUNDS, INC.
DEUTSCHE GERMAN EQUITY FUND - CLASS A
TOTAL RETURN CALCULATION FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS TO
FEBRUARY 28, 1998(A)
Formula P(1+T) = ERV
Net Asset Value $13.75
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,100.04 = ERV
Period from 10/17/97 to 02/28/98 = - = n
(non-annualized)
TOTAL RETURN FOR THE PERIOD 10.00% = T
(a) commencement of operations: 10/17/97
DEUTSCHE FUNDS, INC.
DEUTSCHE JAPANESE EQUITY FUND - CLASS A
TOTAL RETURN CALCULATION FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS TO
FEBRUARY 28, 1998(A)
Formula P(1+T) = ERV
Net Asset Value $10.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $868.04 = ERV
Period from 10/17/97 to 02/28/98 = - = n
(non-annualized)
TOTAL RETURN FOR THE PERIOD -13.20% = T
(a) commencement of operations: 10/17/97
DEUTSCHE FUNDS, INC.
DEUTSCHE GLOBAL BOND FUND - CLASS A
TOTAL RETURN CALCULATION FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS TO
FEBRUARY 28, 1998(A)
Formula P(1+T) = ERV
Net Asset Value $12.73
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,018.44 = ERV
Period from 10/15/97 to 02/28/98 = - = n
(non-annualized)
TOTAL RETURN FOR THE PERIOD 1.84% = T
(a) commencement of operations: 10/15/97
DEUTSCHE FUNDS, INC.
DEUTSCHE EUROPEAN BOND FUND - CLASS A
TOTAL RETURN CALCULATION FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS TO
FEBRUARY 28, 1998(A)
Formula P(1+T) = ERV
Net Asset Value $12.74
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,019.24 = ERV
Period from 10/17/97 to 02/28/98 = - = n
(non-annualized)
TOTAL RETURN FOR THE PERIOD 1.92% = T
(a) commencement of operations: 10/17/97
Exhibit 6(a) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
DEUTSCHE FUNDS, INC.
DISTRIBUTOR'S CONTRACT
AGREEMENT made this 28th day of July, 1997, by and between DEUTSCHE FUNDS,
INC. (the "Corporation"), a Maryland Corporation, and Edgewood Services, Inc.
("Edgewood"), a New York Corporation.
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Corporation hereby appoints Edgewood as its agent to sell and
distribute shares of the Corporation which may be offered in one or more
series (the "Funds") consisting of one or more classes (the "Classes")
of shares (the "Shares"), as described and set forth on one or more
exhibits to this Agreement, at the current offering price thereof as
described and set forth in the current Prospectuses (as defined herein)
of the Corporation. Edgewood hereby accepts such appointment and agrees
to provide such other services for the Corporation, if any, and accept
such compensation from the Corporation, if any, as set forth in the
applicable exhibits to this Agreement.
2. As used herein, the term "Registration Statement" shall mean the
registration statement most recently filed from time to time by the
Corporation with the Securities and Exchange commission (the
"Commission") and effective under the Securities Act of 1933, as amended
(the "1933 Act"), and the Investmetn Company Act of 1940, as amended
(the "1940 Act"), as such registration statement is amended by any
amendments thereto at the time in effect. The term "Prospectus" shall
mean each prospectus included as part of the Corporation's Registration
Statement, as such prospectus may be amended or supplemented from time
to time. The term "SAI" shall mean each Statement of Additional
Information included as part of the Corporation's Registration
Statement, as such Statement of Additional Information may be amended or
supplemented from time to time.
3. The sale of any Shares may be suspended without prior notice whenever in
the judgment of the Corporation it is in its best interest to do so.
4. Neither Edgewood nor any other person is authorized by the Corporation to
give any information or to make any representation relative to any Shares
other than those contained in the Registration Statement, any Prospectus,
or any SAI, or in any supplemental information to said Prospectuses or SAIs
approved by the Corporation. Edgewood agrees that any other information or
representations other than those specified above which it or any dealer or
other person who purchases Shares through Edgewood may make in connection
with the offer or sale of Shares, shall be made entirely without liability
on the part of the Corporation. No person or dealer, other than Edgewood,
is authorized to act as agent for the Corporation for the purpose of the
sale and distribution of Shares. Edgewood agrees that in performing its
duties hereunder, it will act in conformity with the Articles of
Incorporation and the By-laws of the Corporation, the Registration
Statement and each Prospectus and SAI relating to Shares and with the
instructions and directions of the Board of Directors of the Corporation,
and will comply with and conform in all material respects to the
requirements of applicable state and federal laws and the rules and
regulations of the National Association of Securities Dealers, Inc.
("NASD"), including its Rules of Fair Practice.
5. This Agreement is effective with respect to each Class as of the date of
execution of the applicable exhibit and shall continue in effect with
respect to each Class presently set forth on an exhibit and any subsequent
Classes added pursuant to an exhibit during the initial term of this
Agreement for one year from the date hereof, and thereafter for successive
periods of one year if such continuance is approved at least annually with
respect to each Fund and Class as to which it is to continue in effect by
the Directors of the Corporation, including a majority of the members of
the Board of Directors of the Corporation who are not "interested
persons"(as defined in the 1940 Act) of either party hereto cast in person
at a meeting called for that purpose and, if applicable, as provided in
Section 10(a). If a Class is added after the first annual approval by the
Directors as described above, this Agreement will be effective as to that
Class upon execution of the applicable exhibit and will continue in effect
until the next annual approval of this Agreement by the Directors and
thereafter for successive periods of one year, subject to approval as
described above.
6. This Agreement may be terminated with regard to a particular Fund or
Class at any time, without the payment of any penalty, by the vote of a
majority of the DisinterestedDirectors or by a majority of the
outstanding voting securities of the particular Fund or Class, on not
more than sixty (60) days' written notice to the Distributor. This
Agreement may be terminated with regard to a particular Fund or Class by
Edgewood on sixty (60) days' written notice to the Corporation.
7. This Agreement may not be assigned by Edgewood and shall automatically
terminate in the event of an assignment by Edgewood (as defined in the
1940 Act), provided, however, that Edgewood may, with the prior written
consent of the Corporation, employ such other person, persons,
corporation or corporations as it shall determine in order to assist it
in carrying out its duties under this Agreement.
8. Edgewood shall not be liable to the Corporation for anything done or
omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties imposed
by this Agreement.
9. Subject to Section 10, this Agreement may be amended at any time by
mutual agreement in writing of all the parties hereto, provided that no
provision of this Agreement may be changed, waived, discharged or
terminated except by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or
termination is sought, and that the Corporation's consent to any
material amendment to the Agreement requires the approval provided for
in Section 5.
10. The Board of Directors of the Corporation has adopted a Plan of
Distribution pursuant to Rule 12b-1 under the 1940 Act with respect to
one or more Funds and Classes (the "12b-1 Plan") and may make payments
to Edgewood pursuant to such 12b-1 Plan, subject to and in accordance
with the terms and conditions thereof and any related agreements. During
such period as Edgewood receives compensation pursuant to the 12b-1 Plan
with respect to one or meore Funds and Classes, as provided in one or
more exhibits to this Agreement, and this Agreement constitutes a 12b-1
related agreement.
(a) This Agreement shall continue in effect with respect to each Class
for which Edgewood receives compensation pursuant to the 12b-1 Plan from
and after its effective date with respect to such Class only if such
continuance is specifically approved annually by the vote of both the
Corporation's Board of Directors and by the directors who are not
"interested persons" (as defined in the 1940 Act) of the Corporation and
have no direct or indirect financial interest in the operation of the
12b'1 Plan or in any agreements related thereto (the "Independent
Directors"), cast in person at a meeting called for the purpose of
voting on such 12b-1 Plan or related agreements.
(b) This Agreement may be terminated, without the payment of any
penalty, by the Corporation as to any Fund or Class by vote of a
majority of the Independent Directors or by a vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the
affected Fund or Class or by Edgewood, in either case, on sixty days'
prior written notice to the other party.
(c) Any material amendment to this Agreement requires the approval
provided for in Section 10(a) with respect to annual renewals of this
Agreement, and any amendment that materially increases the amount to be
spent for distribution services requires the additional approval of the
majority of the Corporation's outstanding voting securities (as defined
in the 1940 Act) of each affected Fund or Class.
(d) The selection and nomination of those directors who are not
"interested persons" (as defined in the 1940 Act) of the Corporation
shall be committed to the discretion of the Directors of the Corporation
who are not such "interested persons" of the Fund.
11. Edgewood shall clear and file all advertising, sales, marketing and
promotional materials of the Fund provided to Edgewood, or in the
preparation of which it has participated, with the NASD as required by
the 1933 Act and the 1940 Act, and the rules promulgated thereunder, and
by the rules of the NASD. Edgewood will ensure that all direct requests
for Prospectuses and SAIs are fulfilled.
12. Edgewood agrees to make available one or more members of its staff or
the staff of an affiliated company to attend all Board meetings of the
Corporation in order to provide informtion with regard to the ongoing
distribution process and for such other purposes as may be requested by
the Board of Directors of the Corporation.
13. Edgewood represents and warrants to the Corporation that (a) it is duly
organized as a New York Corporation, (b) it is a registered
broker-dealer under the Securities Exchange Act of 1934, as amended, and
(c) its entering into this contract or providing the services
contemplated thereby does not conflict with or constitute a default or
require a consent under or breach of any provision of any agreemetn or
document to which Edgewood is a party or by which it is bound.
14. This Agreement shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania.
15. (a) Subject to the conditions set forth below, the Corporation agrees to
indemnify and hold harmless Edgewood and each person, if any, who controls
Edgewood within the meaning of Section 15 of the 1933 Act and Section 20 of
the Securities Act of 1934, as amended, against any and all loss,
liability, claim, damage and expense whatsoever (including but not limited
to any and all expenses whatsoever reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or
any claim whatsoever) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectuses or SAIs (as from time to time amended and
supplemented) or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Corporation by or on behalf of Edgewood expressly for use in the
Registration Statement, any Prospectuses and SAIs or any amendment or
supplement thereof.
If any action is brought against Edgewood or any controlling
person thereof with respect to which indemnity may be sought
against the Corporation pursuant to the foregoing paragraph,
Edgewood shall promptly notify the Corporation in writing of the
institution of such action and the Corporation shall assume the
defense of such action, including the employment of counsel
selected by the Corporation and payment of expenses. Edgewood or
any such controlling person thereof shall have the right to employ
separate counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of Edgewood or such
controlling person unless the employment of such counsel shall
have been authorized in writing by the Corporation in connection
with the defense of such action or the Corporation shall not have
employed counsel to have charge of the defense of such action, in
any of which events such fees and expenses shall be borne by the
Corporation. Anything in this paragraph to the contrary
notwithstanding, the Corporation shall not be liable for any
settlement of any such claim of action effected without its
written consent. The Corporation agrees promptly to notify
Edgewood of the commencement of any litigation or proceedings
against the Corporation or any of its officers or Directors or
controlling persons in connection with the issue and sale of
Shares or in connection with the Registration Statement,
Prospectuses, or SAIs.
(b) Edgewood agrees to indemnify and hold harmless the Corporation, each
of its Directors, each of its officers who have signed the
Registration Statement and each other person, if any, who controls the
Corporation within the meaning of Section 15 of the 1933 Act, but only
with respect to statements or omissions, if any, made in the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof in reliance upon, and in conformity with,
information furnished to the Corporation about Edgewood by or on
behalf of Edgewood expressly for use in the Registration Statement or
any Prospectus, SAI, or any amendment or supplement thereof. In case
any action shall be brought against the Corporation or any other
person so indemnified based on the Registration Statement or any
Prospectus, SAI, or any amendment or supplement thereof, and with
respect to which indemnity may be sought against Edgewood, Edgewood
shall have the rights and duties given to the Corporation, and the
Corporation and each other person so indemnified shall have the rights
and duties given to Edgewood by the provisions of subsection (a)
above.
(c) Nothing herein contained shall be deemed to protect any person
against liability to the Corporation or its shareholders to which
such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of
the duties of such person or by reason of the reckless disregard
by such person of the obligations and duties of such person under
this Agreement.
(d) Insofar as indemnification for liabilities may be permitted
pursuant to Section 17 of the 1940 Act, Edgewood and controlling
persons of Edgewood by the Corporation pursuant to this
Agreement, the parties hereto are aware of the position of the
Securities and Exchange Commission as set forth in the Investment
Company Act Release No. IC-11330. Therefore, notwithstanding the
foregoing paragraphs (a) and (b), the parties agree that (A) in
addition to complying with other applicable provisions of this
Agreement, in the absence of a final decision on the merits by a
court or other body before which the proceeding was brought, that
an indemnification payment will not be made to Edgewood or any
controlling person of Edgewood unless in the absence of such a
decision, a reasonable determination based upon factual review
has been made (i) by a majority vote of a quorum of non-party
Disinterested Directors, or (ii) by independent legal counsel in
a written opinion that the indemnitee was not liable for an act
of willful misfeasance, bad faith, gross negligence or reckless
disregard of duties; (B) advancement of expenses incurred in the
defense of a proceeding (upon undertaking for repayment unless it
is ultimately determined that indemnification is appropriate)
against Edgewood or controlling persons of Edgewood will not be
made absent the fulfillment of at least one of the following
conditions: (i) the indemnitee provides security for his
undertaking; (ii) the Corporation is insured against losses
arising by reason of any lawful advances; or (iii) a majority of
a quorum of non-party Disinterested Directors or independent
legal counsel in a written opinion makes a factual determination
that there is reason to believe the indemnitee will be entitled
to indemnification.
*trust "11.FSC is hereby expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust and agrees that the
obligations assumed by the Trust pursuant to this Agreement shall be limited "
16. If at any time the Shares of any Fund are offered in two or more
Classes, Edgewood agrees to adopt compliance standards as to when a
class of shares may be sold to particular investors.
17. This Agreement will become binding on the parties hereto upon the
execution of the attached exhibits to the Agreement.
<PAGE>
Exhibit A
to the
Distributor's Contract
DEUTSCHE FUNDS, INC
DEUTSCHE EUROPEAN MID-CAP FUND
DEUTSCHE EUROPEAN BOND FUND
DEUTSCHE GERMAN EQUITY FUND
DEUTSCHE GLOBAL BOND FUND
DEUTSCHE JAPANESE EQUITY FUND
DEUTSCHE TOP 50 ASIA
DEUTSCHE TOP 50 EUROPE
DEUTSCHE TOP 50 US
DEUTSCHE TOP 50 WORLD
DEUTSCHE US MONEY MARKET FUND
CLASS A SHARES
DEUTSCHE INSTITUTIONAL US MONEY MARKET FUND
In consideration of the mutual covenants set forth in the Distributor's
Contract dated July 28, 1997 between Deutsche Family of Funds, Inc. and Edgewood
Services, Inc., Deutsche Family of Funds, Inc. executes and delivers this
Exhibit on behalf of Deutsche European Mid-Cap Fund, Deutsche German Bond Fund,
Deutsche German Equity Fund, Deutsche Global Bond Fund, Deutsche Japanese Equity
Fund, Deutsche Top 50 Asia, Deutsche Top 50 Europe, Deutsche Top 50 US, Deutsche
Top 50 World, and Deutsche US Money Market Fund with respect to the Class A
shares thereof and on behalf of Deutsche Institutional US Money Market Fund.
Witness the due execution hereof this 28th day of July, 1997.
ATTEST: DEUTSCHE FUNDS, INC.
/S/ ROBERT GAMBEE By: /S/ BRIAN LEE
Secretary President
ATTEST: EDGEWOOD SERVICES, INC.
/S/ S. ELLIOTT COHAN /S/ LAWRENCE CARACCIOLO Secretary
<PAGE>
Exhibit B
to the
Distributor's Contract
DEUTSCHE FUNDS, INC.
DEUTSCHE EUROPEAN MID-CAP FUND CLASS B SHARES
DEUTSCHE EUROPEAN BOND FUND CLASS B SHARES
DEUTSCHE GERMAN EQUITY FUND CLASS B SHARES
DEUTSCHE GLOBAL BOND FUND CLASS B SHARES
DEUTSCHE JAPANESE EQUITY FUND CLASS B SHARES
DEUTSCHE TOP 50 ASIA CLASS B SHARES
DEUTSCHE TOP 50 EUROPE CLASS B SHARES
DEUTSCHE TOP 50 WORLD CLASS B SHARES
DEUTSCHE TOP 50 US CLASS B SHARES
DEUTSCHE US MONEY MARKET FUND CLASS B SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated July 28, 1997, between DEUTSCHE FUNDS, INC. and
Edgewood Services, Inc. with respect to the classes of shares set forth above.
1. The Corporation hereby appoints Edgewood to engage in activities
principally intended to result in the sale of shares of the above-listed
Class ("Shares"). Pursuant to this appointment, Edgewood is authorized
to select a group of financial intermediaries ("Financial
Intermediaries") to sell Shares at the current offering price thereof as
described and set forth in the respective prospectuses of the
Corporation.
2. During the term of this Agreement, the Corporation will pay Edgewood for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.75% of the average aggregate net asset value of the
Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. Edgewood may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Class' expenses
exceed such lower expense limitation as Edgewood may, by notice to the
Corporation, voluntarily declare to be effective.
4. Edgewood will enter into separate written agreements, in the form
approved by the Board of Directors of the Corporation, with various
firms to provide certain distribution, marketing and shareholder
services. Edgewood, in its sole discretion, may pay Financial
Intermediaries a periodic fee in respect of Shares owned from time to
time by their clients or customers. The schedules of such fees and the
basis upon which such fees will be paid shall be determined from time to
time by each Fund and Edgewood. Each such agreement that provides for
payments thereunder to be made pursuant to the 12b-1 Plan shall be
subject to annual approval by the Board of Directors of the Corporation
and shall comply with the terms and conditions of the 12b-1 Plan.
5. EDGEWOOD will prepare reports to the Board of directors of the
Corporation on a quarterly basis showing amounts expended hereunder
including amounts paid to Financial Intermediaries and the purpose for
such expenditures.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated July 28, 1997 between DEUTSCHE FUNDS, INC. and Edgewood Services,
Inc. DEUTSCHE FUNDS, INC. executes and delivers this Exhibit on behalf of the
referenced funds, and with respect to the referenced classes of shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 28th day of July, 1997.
ATTEST: Deutsche Funds, Inc.
/S/ ROBERT GAMBEE By: /S/ BRIAN LEE
Secretary President
ATTEST: EDGEWOOD SERVICES, INC.
/S/ S. ELLIOTT COHAN /S/ LAWRENCE CARACCIOLO
Secretary
Exhibit 16(b) under Form N-1A
Exhibit 99 under Item 601/Reg.S-K
DEUTSCHE FUNDS, INC.
DESCRIPTION OF THE
METHOD BY WHICH YIELD
IS COMPUTED
a-b
Yield = 2[ ( ____+1)6
-1]
Where: cd
a = Dividends and
interest
earned during
the period
b = Expenses
accrued for
the period
(net of
reimbursements)
c = The average
daily number
of shares
outstanding
during the
period that
were entitiled
to receive
dividends
d = The maximum offering price per share on the last
day of the period
For the 30 days ended 02/28/98
DEUTSCHE GLOBAL BOND
FUND
a = $52.99
b = $12.19 52.99-12.19
c = 917.894 2[ ( ________+1)6 4.03%
-1] =
d = $13.35 (917.894)(13.35)
For
the
30
days
ended
02/28/98
DEUTSCHE EUROPEAN BOND
FUND
a = $60.68
b = $14.89 60.68-14.89
c = 1094.608 2[ ( ________+1)63.78%
-1] =
d = $13.37 (1,094.608)(13.37)
For the 30 days ended 02/28/98
Exhibit 8(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
CUSTODIAN AGREEMENT
BETWEEN
DEUTCHE FAMILY OF FUNDS, INC.
AND
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
PAGE
1. Bank Appointed Custodian........................................1
2. Definitions.....................................................1
2.1 Authorized Person.........................................1
2.2 Board.....................................................1
2.3 Security..................................................1
2.4 Portfolio Security........................................1
2.5 Officers' Certificate.....................................1
2.6 Book-Entry System.........................................2
2.7 Depository................................................2
2.8 Proper Instructions.......................................2
3. Separate Accounts...............................................2
4. Certification as to Authorized Persons..........................2
5. Custody of Cash.................................................3
5.1 Purchase of Securities....................................3
5.2 Redemptions...............................................3
5.3 Distributions and Expenses of Fund........................3
5.4 Payment in Respect of Securities..........................3
5.5 Repayment of Loans........................................3
5.6 Repayment of Cash.........................................3
5.7 Foreign Exchange Transactions.............................4
5.8 Other Authorized Payments.................................4
5.9 Termination...............................................4
6. Securities......................................................4
6.1 Segregation and Registration..............................4
6.2 Voting and Proxies........................................5
6.3 Corporate Action..........................................5
6.4 Book-Entry System.........................................5
6.5 Use of a Depository.......................................6
6.6 Use of Book-Entry System for Commercial Paper.............7
6.7 Use of Immobilization Programs............................8
6.8 Eurodollar Cds............................................8
6.9 Options and Futures Transactions..........................8
(a) Puts and Calls Traded on Securities Exchanges,
NASDAQ or Over-the-Counter..........................8
(b) Puts, Calls, and Futures Traded
on Commodities Exchanges............................9
6.10 Segregated Account........................................9
6.11 Interest Bearing Call or Time Deposits...................10
6.12 Transfer of Securities...................................11
7. Redemptions....................................................12
8. Merger, Dissolution, etc. of Fund..............................12
9. Actions of Bank Without Prior Authorization....................12
10. Collection and Defaults....................................... 13
11. Maintenance of Records.........................................13
12. [Reserved]
13. Additional Services............................................13
14. Duties of the Bank.............................................14
14.1 Performance of Duties and
Standard of Care.........................................14
14.2 Agents and Subcustodians with Respect to Property
the Fund Held in the United States.......................14
14.3 Duties of the Bank with Respect to Property
ld Outside of the United States..........................15
14.4 Insurance................................................16
14.5 Fees and Expenses of Bank................................16
14.6 Advances by Bank........................................16
14.7 Property of the Fund and Confidentiality.................17
14.8 Relief...................................................18
15. Limitation of Liability........................................18
16. Termination....................................................19
17. Confidentiality of Bank Information............................20
18. Notices........................................................20
19. Amendments.....................................................20
20. Parties........................................................20
21. Governing Law..................................................21
22. Counterparts...................................................21
23. Entire Agreement...............................................21
24. Limitation of Liability........................................21
25. Signature License..............................................21
APPENDICES
Appendix A
Funds
Appendix B
Fee Schedule
Appendix C
Additional Services
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this 28th day of July, 1997, between the Deutsche
Family of Funds, Inc. , a Maryland corporation (the "Fund"), and Investors Bank
& Trust Company, a Massachusetts trust company (the "Bank").
The Fund, an open-end management investment company, desires, on behalf of
the funds listed in APPENDIX A hereto, to place and maintain all of its
portfolio securities and cash in the custody of the Bank. The Bank has at least
the minimum qualifications required by Section 17(f)(1) of the Investment
Company Act of 1940 (the "1940 Act") to act as custodian of the portfolio
securities and cash of the Fund, and has indicated its willingness to so act,
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. BANK APPOINTED CUSTODIAN. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth. For the services rendered pursuant to this
Agreement the Fund agrees to pay to the Bank the fees set forth on APPENDIX B
hereto.
2. DEFINITIONS. Whenever used herein, the terms listed below will have the
following meaning:
2.1 AUTHORIZED PERSON. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of its Board, and set forth in a
certificate as required by Section 4 hereof.
2.2 BOARD. Board will mean the Board of Directors or the Board of
Trustees of the Fund, as the case may be.
2.3 SECURITY. The term security as used herein will have the same
meaning assigned to such term in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.4 PORTFOLIO SECURITY. Portfolio Security will mean any security owned by
the Fund.
2.5 OFFICERS' CERTIFICATE. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
2.6 BOOK-ENTRY SYSTEM. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 DEPOSITORY. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 PROPER INSTRUCTIONS. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the Fund
shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by an Authorized Person.
The Fund shall cause all oral instructions to be promptly confirmed in writing.
The Bank shall act upon and comply with any subsequent Proper Instruction which
modifies a prior instruction and the sole obligation of the Bank with respect to
any follow-up or confirmatory instruction shall be to make reasonable efforts to
detect any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Fund. The Fund shall be responsible, at
the Fund's expense, for taking any action, including any reprocessing, necessary
to correct any such discrepancy or error, and to the extent such action requires
the Bank to act, the Fund shall give the Bank specific Proper Instructions as to
the action required. Upon receipt by the Bank of an Officers' Certificate as to
the authorization by the Board accompanied by a detailed description of
procedures approved by the Fund, Proper Instructions may include communication
effected directly between electro-mechanical or electronic devices provided that
the Board and the Bank agree in writing that such procedures afford adequate
safeguards for the Fund's assets.
3. SEPARATE ACCOUNTS. If the Fund has more than one series or portfolio,
the Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon). Unless the context otherwise requires, any reference in this Agreement
to any actions to be taken by the Fund shall be deemed to refer to the Fund
acting on behalf of one or more of its series, any reference in this Agreement
to any assets of the Fund, including, without limitation, any portfolio
securities and cash and earnings thereon, shall be deemed to refer only to
assets of the applicable series, any duty or obligation of the Bank hereunder to
the Fund shall be deemed to refer to duties and obligations with respect to such
individual series and any obligation or liability of the Fund hereunder shall be
binding only with respect to such individual series, and shall be discharged
only out of the assets of such series.
4. CERTIFICATION AS TO AUTHORIZED PERSONS. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification received by the Bank.
5. CUSTODY OF CASH. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Pursuant to the Bank's internal
policies regarding the management of cash accounts, the Bank may segregate
certain portions of the cash of the Fund into a separate savings deposit account
upon which the Bank reserves the right to require seven (7) days notice prior to
withdrawal of cash from such an account. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of common stock of the
Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below.
5.1 PURCHASE OF SECURITIES. Upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 REDEMPTIONS. In such amount as may be necessary for the
repurchase or redemption of common shares of the Fund offered for repurchase or
redemption in accordance with Section 7 of this Agreement.
5.3 DISTRIBUTIONS AND EXPENSES OF FUND. For the payment on the
account of the Fund of dividends or other distributions to shareholders as may
from time to time be declared by the Board, interest, taxes, management or
supervisory fees, distribution fees, fees of the Bank for its services hereunder
and reimbursement of the expenses and liabilities of the Bank as provided
hereunder, fees of any transfer agent, fees for legal, accounting, and auditing
services, or other operating expenses of the Fund.
5.4 PAYMENT IN RESPECT OF SECURITIES. For payments in connection
with the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 REPAYMENT OF LOANS. To repay loans of money made to the Fund,
but, in the case of final payment, only upon redelivery to the Bank of any
Portfolio Securities pledged or hypothecated therefor and upon surrender of
documents evidencing the loan;
5.6 REPAYMENT OF CASH. To repay the cash delivered to the Fund for
the purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 FOREIGN EXCHANGE TRANSACTIONS.
(a) For payments in connection with foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements")which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 OTHER AUTHORIZED PAYMENTS. For other authorized transactions of
the Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 TERMINATION: Upon the termination of this Agreement as hereinafter set
forth pursuant to Section 8 and Section 16 of this Agreement.
6. SECURITIES.
6.1 SEGREGATION AND REGISTRATION. Except as otherwise provided
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and
hold pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
6.2 VOTING AND PROXIES. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials delivered to the Bank with respect to such
Securities, such proxies to be executed by the registered holder of such
Securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
6.3 CORPORATE ACTION. If at any time the Bank is notified that an
issuer of any Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action, the Response required in
connection with the Corporate Action and the Bank's deadline for receipt from
the Fund of Proper Instructions regarding the Response (the "Response
Deadline"). If possible, the Response Deadline shall be at least three business
days after such notification to the Fund, provided that in no event shall the
Response Deadline be later than 48 hours prior to the Response expiration time
set by the depository processing such Corporate Action. The Bank shall forward
to the Fund via telecopier and/or overnight courier all notices, information
statements or other materials relating to the Corporate Action within
twenty-four (24) hours of receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only after receipt
by the Bank of Proper Instructions from the Fund no later than 5:00 p.m. on the
date specified as the Response Deadline and only if the Bank (or its agent or
subcustodian hereunder) has actual possession of all necessary Securities,
consents and other materials no later than 5:00 p.m. on the date specified as
the Response Deadline.
(b) The Bank shall have no duty to act upon a required Response if
Proper Instructions relating to such Response and all necessary Securities,
consents and other materials are not received by and in the possession of the
Bank no later than 5:00 p.m. on the date specified as the Response Deadline.
Notwithstanding, the Bank may, in its sole discretion, use its best efforts to
act upon a Response for which Proper Instructions and/or necessary Securities,
consents or other materials are received by the Bank after 5:00 p.m. on the date
specified as the Response Deadline, it being acknowledged and agreed by the
parties that any undertaking by the Bank to use its best efforts in such
circumstances shall in no way create any duty upon the Bank to complete such
Response prior to its expiration.
(c) In the event that the Fund notifies the Bank of a Corporate
Action requiring a Response and the Bank has received no other notice of such
Corporate Action, the Response Deadline shall be 48 hours prior to the Response
expiration time set by the depository processing such Corporate Action.
(d) Section 14.3(g) of this Agreement shall govern any Corporate
Action involving Foreign Portfolio Securities held by a Selected Foreign
Sub-Custodian.
6.4 BOOK-ENTRY SYSTEM. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits of
Fund assets in the Book-Entry System, and (ii) for any subsequent changes to
such arrangements following such approval, the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry System
provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to the
Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry the Portfolio Securities which are included
with other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of securities in a
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased for
the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that payment
for securities sold or payment of the initial cash collateral against the
delivery of securities loaned by the Fund has been transferred to the Account;
and
(ii) the making of an entry on the records of the Bank (or its
agent) to reflect such transfer and payment for the account of the Fund. Copies
of all advices from the Book-Entry System of transfers of securities for the
account of the Fund shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The Bank shall send the
Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any transfers
to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report obtained
by the Bank or its agent on the Book-Entry System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Book-Entry System;
(e) Anything to the contrary in this Agreement notwithstanding, the
Bank shall be liable to the Fund for any loss or damage to the Fund resulting
from use of the Book-Entry System by reason of any negligence, willful
misfeasance or misconduct of the Bank or of any of its employees or from any
negligent failure by the Bank of its duty to undertake reasonable efforts to
enforce effectively such rights as it may have against the Book-Entry System; at
the election of the Fund, it shall be entitled to be subrogated to the Bank in
any claim against the Book-Entry System or any other person which the Bank may
have as a consequence of any such loss or damage if and to the extent that the
Fund has not been made whole for any loss or damage.
6.5 USE OF A DEPOSITORY. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name of
any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through
the clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the securities to or for the account of the Fund and
the Fund shall pay cash collateral against the return of Portfolio Securities
loaned by the Fund only upon delivery of the Securities to or for the account of
the Fund; and upon any sale of Portfolio Securities, delivery of the Securities
will be made only against payment therefor or, in the event Portfolio Securities
are loaned, delivery of Securities will be made only against receipt of the
initial cash collateral to or for the account of the Fund; and
(d) The Bank shall be subject to the same liability and duty to the
Fund and its shareholders with respect to all securities of the Fund, and all
cash, stock dividends, rights and items of like nature to which the Fund is
entitled, held or received by a central securities system as agent for the Bank,
pursuant to the foregoing authorization, as if the same were held or received by
the Bank at its own offices. In this connection, without limiting the foregoing
duty or liability, the Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
(ii) Proxy materials received by a Depository with respect to
Portfolio Securities deposited with such Depository are forwarded immediately to
the Bank for prompt transmittal to the Fund;
(iii) Such Depository promptly forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.6 USE OF BOOK-ENTRY SYSTEM FOR COMMERCIAL PAPER. Provided (i) the
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Fund has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a
book-entry agreement (the "Issuers"). In maintaining procedures for Book-Entry
Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the Fund in an
account of the Bank that includes only assets held by it for customers;
(b) The records of the Bank with respect to the Fund's purchase of
Book-Entry Paper through the Bank will identify, by book-entry, commercial paper
belonging to the Fund which is included in the Book-Entry System and shall at
all times during the regular business hours of the Bank be open for inspection
by duly authorized officers, employees or agents of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation upon the
maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund; and
(e) The Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry Paper as the Fund may
reasonably request from time to time. . 6.7 USE OF IMMOBILIZATION PROGRAMS.
Provided (i) the Bank has received a certified copy of a resolution of the Board
specifically approving the maintenance of Portfolio Securities in an
immobilization program operated by a bank which meets the requirements of
Section 26(a)(1) of the 1940 Act, and (ii) for each year following such approval
the Board has reviewed and approved the arrangement and has not delivered an
Officer's Certificate to the Bank indicating that the Board has withdrawn its
approval, the Bank shall enter into such immobilization program with such bank
acting as a subcustodian hereunder.
6.8 EURODOLLAR CDS. Any Portfolio Securities which are Eurodollar
CDs may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European Branch"),
provided that such Portfolio Securities are identified on the books of the Bank
as belonging to the Fund and that the books of the Bank identify the European
Branch holding such Portfolio Securities. Notwithstanding any other provision of
this Agreement to the contrary, except as stated in the first sentence of this
subsection 6.8, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to the Fund.
6.9 OPTIONS AND FUTURES TRANSACTIONS.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
(i) The Bank shall take action as to put options ("puts") and
call options ("calls") purchased or sold (written) by the Fund regarding escrow
or other arrangements (i) in accordance with the provisions of any agreement
entered into upon receipt of Proper Instructions among the Bank, any
broker-dealer registered with the National Association of Securities Dealers,
Inc. (the "NASD"), and, if necessary, the Fund, relating to the compliance with
the rules of the Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or organizations.
(ii) Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that the Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Fund.
The Bank shall have no responsibility for the legality of any put or call
purchased or sold on behalf of the Fund, the propriety of any such purchase or
sale, or the adequacy of any collateral delivered to a broker in connection with
an option or deposited to or withdrawn from a Segregated Account (as defined in
subsection 6.10 below). The Bank specifically, but not by way of limitation,
shall not be under any duty or obligation to: (i) periodically check or notify
the Fund that the amount of such collateral held by a broker or held in a
Segregated Account is sufficient to protect such broker or the Fund against any
loss; (ii) effect the return of any collateral delivered to a broker; or (iii)
advise the Fund that any option it holds, has or is about to expire. Such duties
or obligations shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in accordance with the
provisions of any agreement entered into upon the receipt of Proper Instructions
among the Fund, the Bank and a Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund.
(ii) The responsibilities of the Bank as to futures, puts and
calls traded on commodities exchanges, any Futures Commission Merchant account
and the Segregated Account shall be limited as set forth in subparagraph (a)(2)
of this Section 6.8 as if such subparagraph referred to Futures Commission
Merchants rather than brokers, and Futures and puts and calls thereon instead of
options.
6.10 SEGREGATED ACCOUNT. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
(i) in accordance with the provisions of any agreement among
the Fund, the Bank and a broker-dealer registered under the Exchange Act and a
member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Options
Clearing Corporation, the rules, policies and interpretations of the Securities
and Exchange Commission, and the rules of any registered national securities
exchange or the Commodity Futures Trading Commission or any registered Contract
Market, or of any similar organizations regarding escrow or other arrangements
in connection with transactions by the Fund;
(ii) for the purpose of segregating cash or securities in
connection with options purchased or written by the Fund or commodity futures
purchased or written by the Fund;
(iii) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies;
(v) for other proper corporate purposes, but only, in the case
of this clause (e), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the executive committee of
the Board signed by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such Segregated
Account and declaring such purposes to be proper corporate purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i) with respect to assets deposited in accordance with the
provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii) or
(a)(iv) above, for sale or delivery to meet the Fund's obligations under
outstanding forward commitment or when-issued agreements for the purchase of
Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or greater
value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward
commitment or when- issued agreements for the purchase of portfolio securities
or reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those in the
Segregated Account;
(v) for delivery upon settlement of a forward commitment or
when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (e) above,
in accordance with the purposes of such account as set forth in Proper
Instructions.
6.11 INTEREST BEARING CALL OR TIME DEPOSITS. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit, the banking institution with which such deposit is made (the "Deposit
Bank"), and shall retain such forms of advice or receipt evidencing the deposit,
if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall
be deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
6.12 TRANSFER OF SECURITIES. The Bank will transfer, exchange,
deliver or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section only upon receipt of
Proper Instructions. The Proper Instructions shall state that such transfer,
exchange or delivery is for a purpose permitted under the terms of this Section
6.11, and shall specify the applicable subsection, or describe the purpose of
the transaction with sufficient particularity to permit the Bank to ascertain
the applicable subsection. After receipt of such Proper Instructions, the Bank
will transfer, exchange, deliver or release Portfolio Securities only in the
following circumstances:
(a) Upon sales of Portfolio Securities for the account of the Fund,
against contemporaneous receipt by the Bank of payment therefor in full, or,
unless the Bank has received Proper Instructions providing otherwise for any
specific jurisdiction, against payment to the Bank in accordance with generally
accepted settlement practices and customs in the jurisdiction or market in which
the transaction occurs, each such payment to be in the amount of the sale price
shown in a broker's confirmation of sale received by the Bank before such
payment is made, as confirmed in the Proper Instructions received by the Bank
before such payment is made;
(b) In exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan of merger, consolidation,
reorganization, share split-up, change in par value, recapitalization or
readjustment or otherwise, upon exercise of subscription, purchase or sale or
other similar rights represented by such Portfolio Securities, or for the
purpose of tendering shares in the event of a tender offer therefor, provided,
however, that in the event of an offer of exchange, tender offer, or other
exercise of rights requiring the physical tender or delivery of Portfolio
Securities, the Bank shall have no liability for failure to so tender in a
timely manner unless such Proper Instructions are received by the Bank at least
two business days prior to the date required for tender, and unless the Bank (or
its agent or subcustodian hereunder) has actual possession of such Security at
least two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their terms
into other securities;
(d) For the purpose of redeeming in-kind shares of the Fund upon
authorization from the Fund;
(e) In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or retired
or otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender and any loan agreement between the Fund and the
lender that an event of deficiency or default on the loan has occurred, the Bank
may deliver such pledged Portfolio Securities to or for the account of the
lender as provided in such loan agreement;
(h) for the purpose of releasing certificates representing Portfolio
Securities, against contemporaneous receipt by the Bank of the fair market value
of such security, as set forth in the Proper Instructions received by the Bank
before such payment is made;
(i) for the purpose of delivering securities lent by the Fund to a
bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank. 7. REDEMPTIONS. In the case of payment of assets of the Fund held by the
Bank in connection with redemptions and repurchases by the Fund of outstanding
common shares, the Bank will rely on notification by the Fund's transfer agent
of receipt of a request for redemption and certificates, if issued, in proper
form for redemption before such payment is made. Payment shall be made in
accordance with the Articles of Incorporation or Declaration of Trust and
By-laws of the Fund (the "Articles"), from assets available for said purpose.
8. MERGER, DISSOLUTION, ETC. OF FUND. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate and the
Bank shall be released from any and all obligations hereunder.
9. ACTIONS OF BANK WITHOUT PRIOR AUTHORIZATION. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name
of the Fund all checks, drafts, or other negotiable or transferable instruments
or other orders for the payment of money received by it for the account of the
Fund and hold for the account of the Fund all income, dividends, interest and
other payments or distributions of cash with respect to the Portfolio Securities
held thereunder;
9.2 Present for payment all coupons and other income items held by
it for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue Code or
the regulations of the Treasury Department issued thereunder, or by the laws of
any state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. COLLECTIONS AND DEFAULTS. The Bank will use reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal. The Bank shall provide to the Fund a monthly report, in a form agreed
to by the Bank and the Fund, listing, among other things, overdue or uncollected
items.
11. MAINTENANCE OF RECORDS AND ACCOUNTING SERVICES. The Bank will maintain
records with respect to transactions for which the Bank is responsible pursuant
to the terms and conditions of this Agreement, and in compliance with the
applicable rules and regulations of the 1940 Act. The books and records of the
Bank pertaining to its actions under this Agreement and reports by the Bank or
its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
12. [Reserved]
13. ADDITIONAL SERVICES. The Bank shall perform the additional services
for the Fund as are set forth on APPENDIX C hereto. APPENDIX C may be amended
from time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Fund, at which time the fees set
forth in APPENDIX B shall be appropriately increased.
14. DUTIES OF THE BANK.
14.1 PERFORMANCE OF DUTIES AND STANDARD OF CARE. In performing its
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and
will not be liable for:
(a) the validity of the issue of any Portfolio Securities purchased
by or for the Fund, the legality of the purchases thereof or the propriety of
the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for
the Fund or the propriety of the amount for which the same are
sold;
(c) the legality of an issue or sale of any common shares of the
Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the Fund
or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund or
the legality of the distribution of any Portfolio Securities as payment in kind
of such dividend; and
(f) any property or moneys of the Fund unless and until received by
it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Articles, By-laws, any federal or state statutes or
any rule or regulation of any governmental agency.
14.2 AGENTS AND SUBCUSTODIANS WITH RESPECT TO PROPERTY OF THE FUND
HELD IN THE UNITED STATES. The Bank may employ agents in the performance of its
duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder. Without limiting the foregoing,
certain duties of the Bank hereunder may be performed by one or more affiliates
of the Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians,
provided that any such subcustodian meets at least the minimum qualifications
required by Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's
assets with respect to property of the Fund held in the United States. The Bank
shall have no liability to the Fund or any other person by reason of any act or
omission of any subcustodian and the Fund shall indemnify the Bank and hold it
harmless from and against any and all actions, suits and claims, arising
directly or indirectly out of the performance of any subcustodian, provided,
however, that this provision shall not protect the Bank in the event of the
Bank's own negligence, willful misfeasance or misconduct or from any negligent
disregard of its own duties hereunder. Upon request of the Bank, the Fund shall
assume the entire defense of any action, suit, or claim subject to the foregoing
indemnity. The Fund shall pay all fees and expenses of any subcustodian.
14.3 DUTIES OF THE BANK WITH RESPECT TO PROPERTY OF THE FUND
HELDOUTSIDE OF THE UNITED STATES.
(a) APPOINTMENT OF FOREIGN SUB-CUSTODIANS. Pursuant to a Delegation
Agreement of even date herewith by and between the Bank and the Fund (the
"Delegation Agreement"), the Fund has delegated certain responsibilities
concerning the Fund's Portfolio Securities and other assets maintained outside
the United States, including the selection of Eligible Foreign Subcustodians (as
defined in the Delegation Agreement (each, a "Selected Foreign Sub-Custodian").
The terms of the Delegation Agreement shall control as to the items set forth
therein.
(b) SEGREGATION OF SECURITIES. The Bank shall identify on its books
as belonging to the Fund the Foreign Portfolio Securities held by each Selected
Foreign Sub-Custodian. Each agreement pursuant to which the Bank employs a
foreign banking institution shall require that such institution establish a
custody account for the Bank and hold in that account Foreign Portfolio
Securities and other assets of the Fund, and, in the event that such institution
deposits Foreign Portfolio Securities in a foreign securities depository, that
it shall identify on its books as belonging to the Bank the securities so
deposited.
(c) TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. Transactions with
respect to the assets of the Fund held by a Selected Foreign Sub-Custodian shall
be effected pursuant to Proper Instructions from the Fund to the Bank and shall
be effected in accordance with the applicable Foreign Sub-Custodian Agreement.
If at any time any Foreign Portfolio Securities shall be registered in the name
of the nominee of the Selected Foreign Sub-Custodian, the Fund agrees to hold
any such nominee harmless from any liability by reason of the registration of
such securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for Foreign Portfolio Securities received for the account
of the Fund and delivery of Foreign Portfolio Securities maintained for the
account of the Fund may be effected in accordance with the customary established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, if
applicable, delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such purchaser
or dealer unless the Bank receives Proper Instructions prohibiting delivery
against expectation of later payment in any applicable jurisdiction.
In connection with any action to be taken with respect to the
Foreign Portfolio Securities held hereunder, including, without limitation, the
exercise of any voting rights, subscription rights, redemption rights, exchange
rights, conversion rights or tender rights, or any other action in connection
with any other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Foreign Sub-Custodian, and shall promptly forward to the applicable Foreign
Sub-Custodian any instructions, forms or certifications with respect to such
Rights, and any instructions relating to the actions to be taken in connection
therewith, as the Bank shall receive from the Fund pursuant to Proper
Instructions. Notwithstanding the foregoing, the Bank shall have no further duty
or obligation with respect to such Rights, including, without limitation, the
determination of whether the Fund is entitled to participate in such Rights
under applicable U.S. and foreign laws, or the determination of whether any
action proposed to be taken with respect to such Rights by the Fund or by the
applicable Foreign Sub-Custodian will comply with all applicable terms and
conditions of any such Rights or any applicable laws or regulations, or market
practices within the market in which such action is to be taken or omitted.
(d) LIABILITY OF SELECTED FOREIGN SUB-CUSTODIANS. Each of the
agreements pursuant to which a foreign banking institution holds assets of the
Fund (each, a "Foreign Sub-Custodian Agreement")shall require the institution to
exercise reasonable care in the performance of its duties and to indemnify, and
hold harmless, the Bank and each Fund from and against certain losses, damages,
costs, expenses, liabilities or claims arising out of or in connection with the
institution's performance of such obligations, all as set forth in the
applicable Foreign Sub-Custodian Agreement. At the election of the Fund, it
shall be entitled to be subrogated to the rights of the Bank with respect to any
claims against a subcustodian as a consequence of any such loss, damage, cost,
expense liability or claim, if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense liability or claim. The Fund
acknowledges that the Bank, as a participant in Euro-clear, is subject to the
Terms and Conditions Governing the Euro-Clear System, a copy of which has been
made available to the Fund. The Fund acknowledges that pursuant to such Terms
and Conditions, Morgan Guaranty Brussels shall have the sole right to exercise
or assert any and all rights or claims in respect of actions or omissions of, or
the bankruptcy or insolvency of, any other depository, clearance system or
custodian utilized by Euro- clear in connection with the Fund's securities and
other assets.
(e) TAX LAW. The Bank shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Bank as custodian of
the Fund by the tax laws of any jurisdiction, and it shall be the responsibility
of the Fund to notify the Bank of the obligations imposed on the Fund or the
Bank as the custodian of the Fund by the tax law of any non-U.S. jurisdiction,
including responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The Bank shall
administer the tax reclaim process and shall work with the Selected Foreign
Sub-custodian to pursue any claim for exemption or refund under the tax law of
jurisdictions for which the Fund has provided information regarding obligations
imposed on the Fund.
14.4 INSURANCE. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
14.5. FEES AND EXPENSES OF THE BANK. The Fund will pay or reimburse
the Bank from time to time for any transfer taxes payable upon transfer of
Portfolio Securities made hereunder, and for all necessary proper disbursements,
expenses and charges made or incurred by the Bank in the performance of this
Agreement (including any duties listed on any Schedule hereto, if any) including
any indemnities for any loss, liabilities or expense to the Bank as provided
above. For the services rendered by the Bank hereunder, the Fund will pay to the
Bank such compensation or fees at such rate and at such times as shall be agreed
upon in writing by the parties from time to time. The Bank will also be entitled
to reimbursement by the Fund for all reasonable expenses incurred in conjunction
with termination of this Agreement.
14.6 ADVANCES BY THE BANK. The Bank may, in its sole discretion,
advance funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this Agreement
for such payments by the Fund. Should such a payment or payments, with advanced
funds, result in an overdraft (due to insufficiencies of the Fund's account with
the Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness a loan made by the Bank to the Fund payable on demand. Such
overdraft shall bear interest at the current rate charged by the Bank for such
loans unless the Fund shall provide the Bank with agreed upon compensating
balances. The Fund agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness, in and to any
property at any time held by it for the Fund's benefit or in which the Fund has
an interest and which is then in the Bank's possession or control (or in the
possession or control of any third party acting on the Bank's behalf). The Fund
authorizes the Bank, in the Bank's sole discretion, at any time to charge any
overdraft or indebtedness, together with interest due thereon, against any
balance of account standing to the credit of the Fund on the Bank's books.
14.7 PROPERTY OF THE FUND AND CONFIDENTIALITY. The Fund's records,
including all those maintained hereunder by the Bank, whether in magnetic media,
hard copy, film form or other format, shall be the Fund's property for all
purposes, and the Bank shall treat confidentially and as proprietary information
of the fund all such records and other information relative to the Fund which is
not independently available to the Bank or in the public domain, and shall use
such records only in connection with the performance of its duties hereunder and
for no other purpose. In particular, the Bank agrees:
(a) that all information and data so acquired by it or its
employees, agents or contractors under this Agreement, or in contemplation
thereof, shall be and shall remain the Fund's exclusive property;
(b) to inform its employees, agents or contractors engaged in
handling such information and data of the confidential nature of such
information and data;
(c) to limit access to such information and data to authorized
employees, agents or contractors of the Bank and the Fund who have a need to
know and use such information and data in connection with this Agreement and the
services to be supplied herein;
(d) to keep, and have their employees, agents and contractors keep,
any and all such information and data confidential;
(e) not to copy or publish or disclose such information and data to
others or authorize their employees, agents, contractors or anyone else, to copy
or publish or disclose such information and data to others without the other
party's prior written approval, except if required by a state or federal court
or agency, and in such an event prompt written notice of such disclosure
requirement shall be provided to the other party if permitted by law; and
(f) that upon termination of this Agreement, all records and other
confidential information of the Fund in the possession of the Bank shall be
returned to the Fund or its designated successor custodian, offshore agent,
administrator, subadministrator or fund accountant, as provided herein.
The confidentiality provisions noted above will survive termination
of this Agreement for a period of two years.
The parties further agree that this Agreement will be considered
confidential during the term of its existence, that access to it will be limited
to those employees, agents, contractors or other persons who have a need to know
of or utilize the Agreement (including, without being limited to, the fund's
Board of Directors or Trustees, the auditors and counsel to the Fund, and
Deutsche Fund Management, Inc. or any of its affiliates), and that neither party
will publish or disclose the Agreement to others without the other party's prior
written approval except if required by a state or federal court or agency, and
in such event prompt written notice of such disclosure requirement shall be
provided to the other party if permitted by law.
14.8 RELIEF. The Bank recognizes that the property and proprietary
information of the Fund is unique, and that the Fund cannot be fully compensated
by money damages and would be irreparably harmed by the disclosure of its
confidential information and data in violation of the provisions of Paragraph
14.7. The Bank therefore agrees that the Fund may seek immediate relief at
equity for any failure to comply with Paragraph 14.7 hereof, in addition to any
other remedies the Fund may have in law or in equity.
14.9 REPORTS BY INDEPENDENT PUBLIC ACCOUNTANTS. Upon reasonable
request by the Fund, the Bank shall provide the Fund with copies of any reports
created by independent public accounts relating to the accounting system,
internal accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts in connection with the services
provided by the Bank to its clients that are the same or similar as the services
provided under this Agreement.
15. LIMITATION OF LIABILITY.
15.1 Notwithstanding anything in this Agreement to the contrary, in
no event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except for any Claim resulting solely from the negligence, willful
misfeasance or bad faith of the Bank or any Indemnified Party. Without limiting
the foregoing, neither the Bank nor the Indemnified Parties shall be liable for,
and the Bank and the Indemnified Parties shall be indemnified against, any Claim
arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party in good
faith reliance upon the terms of this Agreement, any Officer's Certificate,
Proper Instructions, resolution of the Board, telegram, telecopier, notice,
request, certificate or other instrument reasonably believed by the Bank to
genuine;
(b) Any act or omission of any subcustodian selected by or at the
direction of the Fund;
(c) Any Corporate Action requiring a Response for which the Bank has
not received Proper Instructions or obtained actual possession of all necessary
Securities, consents or other materials by 5:00 p.m. on the date specified as
the Response Deadline;
(d) Any act or omission of any European Branch of a U.S. banking
institution that is the issuer of Eurodollar CDs in connection with any
Eurodollar CDs held by such European Branch;
(e) Information relied on in good faith by the Bank and supplied by
any Authorized Person in connection with the calculation of (i) the net asset
value and public offering price of the shares of capital stock of the Fund or
(ii) the Yield Calculation; or
(f) Any acts of God, earthquakes, fires, floods, storms or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation, the unavailability of energy sources
and other similar happenings or events.
15.2 Notwithstanding anything to the contrary in this Agreement, in
no event shall the Bank or the Indemnified Parties be liable to the Fund or any
third party for lost profits or lost revenues or any special, consequential,
punitive or incidental damages of any kind whatsoever in connection with this
Agreement or any activities hereunder.
16. TERMINATION.
16.1 The term of this Agreement shall be three years commencing upon
the effective date of the Fund's registration statement (the "Initial Term"),
unless earlier terminated as provided herein. After the expiration of the
Initial Term, the term of this Agreement shall automatically renew for
successive one-year terms (each a "Renewal Term") unless (i) the Fund delivers a
notice of non-renewal to the Bank no later than six months prior to the
expiration of the Initial Term, or (ii) the Bank delivers a notice of
non-renewal to the Fund no later than one year prior to the expiration of the
Initial Term.
(a) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within 90 days of receipt of such notice.
(b) The Fund may terminate this Agreement during any Renewal Term
upon six months written notice to the Bank. The Bank may terminate this
Agreement during any Renewal Term upon one year written notice to the Fund. Any
termination pursuant to this paragraph 16.1(b) shall be effective upon
expiration of such notice period.
16.2 In the event of the termination of this Agreement, the Bank
will immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection (16.3), deliver the Portfolio Securities and cash of
the Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$10,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
Fund with the same effect as though selected by the Board. Thereafter, the Bank
shall be released from any and all obligations under this Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement,
except for the Bank's obligations under Section 14.7 hereof and any liability to
the Fund already accrued and payable.
16.4 The Fund shall reimburse the Bank for any reasonable expenses incurred
by the Bank in connection with the termination of this Agreement.
16.5 At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of the Bank
relating to its performance of its duties as custodian.
17. CONFIDENTIALITY OF BANK INFORMATION. The Fund agrees than any
non-public information obtained hereunder concerning the Bank is confidential
and may not be disclosed without the consent of the Bank, except as may be
required by applicable law or at the request of a governmental agency. The Fund
further agrees that a breach of this provision would irreparably damage the Bank
and accordingly the Fund agrees that the Bank is entitled, in addition to all
other remedies at law or in equity to an injunction or injunctions without bond
or other security to prevent breaches of this provision.
18. NOTICES. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
Deutsche Family of Funds, Inc.
c/o Deutsche Fund Management, Inc.
31 W. 52nd Street New York, NY 10019
Attention: President
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: James Keenan, Director, Client Management
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time designate in
writing.
19. AMENDMENTS. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties.
20. PARTIES. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
21. GOVERNING LAW. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
23. ENTIRE AGREEMENT. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
24. LIMITATION OF LIABILITY. The Bank agrees that the obligations assumed
by the Fund hereunder shall be limited in all cases to the assets of the Fund
and that the Bank shall not seek satisfaction of any such obligation from the
officers, agents, employees, trustees, or shareholders of the Fund.
25. SIGNATURE LICENSE. The Bank shall remain a licensee of Signature
Financial Group, Inc. with respect to the trademarks of Hub(R) and Spoke(R)1 and
related proprietary rights during the term of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
DEUTSCHE FAMILY OF FUNDS, INC.
By: /S/ BRIAN LEE
Name: Brian Lee
Title: President
By: /S/ JOSEPH CHEUNG
Name: Joseph Cheung
Title: Treasurer
INVESTORS BANK & TRUST COMPANY
By: /S/ ROBERT D. MANCUSO
Name: Robert D. Mancuso
Title: Senior Vice President
<PAGE>
APPENDIX A
FUNDS
Deutsche European Mid-Cap Fund
Deutsche German Equity Fund
Deutsche Japanese Equity Fund
Deutsche Global Bond Fund
Deutsche European Bond Fund
Deutsche Top 50 World
Deutsche Top 50 Europe
Deutsche Top 50 Asia
Deutsche Top 50 US
Deutsche US Money Market Fund
Deutsche Institutional US Money Market Fund
Exhibit 9(b)(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
FUND ACCOUNTING AGREEMENT
AGREEMENT made as of this 28th day of July, 1997, between the Deutsche
Family of Funds, Inc., a Maryland corporation (the "Fund") and IBT Fund Services
(Canada) Inc. ("IBT").
The Fund, an open-end management investment company desires, on behalf of
the funds listed on APPENDIX A hereto, to retain IBT to perform certain fund
accounting services for the several portfolios of the Fund currently existing
and hereafter established (the "Portfolios"), and IBT has indicated its
willingness to so act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. DEFINITIONS. Whenever used herein, the terms listed below will have the
following meaning:
1.1 AUTHORIZED PERSON. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of its Board, and set forth in a
certificate as required by Section 4 hereof.
1.2 BOARD. Board will mean the Board of Trustees of the Fund.
1.3 OFFICERS' CERTIFICATE. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
1.4 PROPER INSTRUCTIONS. Proper Instructions shall mean instructions
(which may be continuing instructions) regarding matters signed or initialed by
an Authorized Person. Oral instructions will be considered Proper Instructions
if IBT reasonably believes them to have been given by an Authorized Person. The
Fund shall cause all oral instructions to be promptly confirmed in writing. IBT
shall act upon and comply with any subsequent Proper Instruction which modifies
a prior instruction and the sole obligation of IBT with respect to any follow-up
or confirmatory instruction shall be to make reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to report
such discrepancy to the Fund. The Fund shall be responsible, at the Fund's
expense, for taking any action, including any reprocessing, necessary to correct
any such discrepancy or error, and to the extent such action requires IBT to
act, the Fund shall give IBT specific Proper Instructions as to the action
required. Upon receipt by IBT of an Officers' Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Fund, Proper Instructions may include communication effected
directly between electro-mechanical or electronic devices provided that the
Board and IBT agree in writing that such procedures afford adequate safeguards
for the Fund's assets.
2. CERTIFICATION AS TO AUTHORIZED PERSONS. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with IBT his or her
certification to IBT, in such form as may be acceptable to IBT, of (i) the names
and signatures of the Authorized Persons and (ii) the names of the members of
the Board, it being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. IBT will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification received by IBT.
3. MAINTENANCE OF RECORDS AND ACCOUNTING SERVICES. The Bank will maintain
records with respect to transactions for which the Bank is responsible pursuant
to the terms and conditions of this Agreement, and in compliance with the
applicable rules and regulations of the 1940 Act. The books and records of the
Bank pertaining to its actions under this Agreement and reports by the Bank or
its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
4. FUND EVALUATION AND YIELD CALCULATION
4.1 FUND EVALUATION. IBT shall compute and, unless otherwise
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the public offering price of a share of capital
stock of each Portfolio, such determination to be made in accordance with the
provisions of the Declaration of Trust and By-laws of the Fund and the
Registration Statement relating to each Portfolio, as they may from time to time
be amended, and any applicable resolutions of the Board at the time in force and
applicable; and promptly to notify the Fund, the proper exchange and the NASD or
such other persons as the Fund may request of the results of such computation
and determination. In computing the net asset value hereunder, IBT may rely in
good faith upon information furnished to it by any Authorized Person in respect
of (i) the manner of accrual of the liabilities of the Fund and in respect of
liabilities of the Fund not appearing on its books of account kept by IBT, (ii)
reserves, if any, authorized by the Board or that no such reserves have been
authorized, (iii) the source of the quotations to be used in computing the net
asset value, (iv) the value to be assigned to any security for which no price
quotations are available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares, and IBT shall
not be responsible for any loss occasioned by such reliance or for any good
faith reliance on any quotations received from a source pursuant to (iii) above.
4.2. YIELD CALCULATION. IBT will compute the performance results of
the Portfolios (the "Yield Calculation") in accordance with the provisions of
Release No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases")
promulgated by the Securities and Exchange Commission, and any subsequent
amendments to, published interpretations of or general conventions accepted by
the staff of the Securities and Exchange Commission with respect to such
releases or the subject matter thereof ("Subsequent Staff Positions"), subject
to the terms set forth below:
(a) IBT shall compute the Yield Calculation for the Fund for the
stated periods of time as shall be mutually agreed upon, and communicate in a
timely manner the result of such computation to the Fund.
(b) In performing the Yield Calculation, IBT will derive the items
of data necessary for the computation from the records it generates and
maintains for the Fund pursuant Section 3 hereof. IBT shall have no
responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Fund, any of the Fund's designated agents or any of the Fund's designated
third party providers.
(c) At the request of IBT, the Fund shall provide, and IBT shall be
entitled to rely on, written standards and guidelines to be followed by IBT in
interpreting and applying the computation methods set forth in the Releases or
any Subsequent Staff Positions as they specifically apply to the Fund. In the
event that the computation methods in the Releases or the Subsequent Staff
Positions or the application to the Fund of a standard or guideline is not free
from doubt or in the event there is any question of interpretation as to the
characterization of a particular security or any aspect of a security or a
payment with respect thereto (e.g., original issue discount, participating debt
security, income or return of capital, etc.) or otherwise or as to any other
element of the computation which is pertinent to the Fund, the Fund or its
designated agent shall have the full responsibility for making the determination
of how the security or payment is to be treated for purposes of the computation
and how the computation is to be made and shall inform IBT thereof on a timely
basis. IBT shall have no responsibility to make independent determinations with
respect to any item which is covered by this Section, and shall not be
responsible for its computations made in accordance with such determinations so
long as such computations are mathematically correct.
(d) The Fund shall keep IBT informed of all publicly available
information and of any non-public advice, or information obtained by the Fund
from its independent auditors or by its personnel or the personnel of its
investment adviser, or Subsequent Staff Positions related to the computations to
be undertaken by IBT pursuant to this Agreement and IBT shall not be deemed to
have knowledge of such information (except as contained in the Releases) unless
it has been furnished to IBT in writing.
5. FEES. For the services rendered pursuant to this Agreement, the Fund
agrees to pay IBT the fees set forth on APPENDIX B hereto.
6. ADDITIONAL SERVICES. IBT shall perform the additional services for the
Fund as are set forth on APPENDIX C hereto. APPENDIX C may be amended from time
to time upon agreement of the parties to include further additional services to
be provided by IBT to the Fund, at which time the fees set forth in APPENDIX B
shall be appropriately increased.
7. LIMITATION OF LIABILITY.
7.1 Notwithstanding anything in this Agreement to the contrary, in
no event shall IBT or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold IBT and the Indemnified Parties
harmless from and against any and all loss, damage, liability, actions, suits,
claims, costs and expenses, including legal fees, (a "Claim") arising as a
result of any act or omission of IBT or any Indemnified Party under this
Agreement, except for any Claim resulting solely from the negligence, willful
misfeasance or bad faith of IBT or any Indemnified Party. Without limiting the
foregoing, neither IBT nor the Indemnified Parties shall be liable for, and IBT
and the Indemnified Parties shall be indemnified against, any Claim arising as a
result of:
(a) Any act or omission by IBT or any Indemnified Party in good
faith reliance upon the terms of this Agreement, any Officer's Certificate,
Proper Instructions, resolution of the Board, telegram, telecopier, notice,
request, certificate or other instrument reasonably believed by IBT to genuine;
(b) Information relied on in good faith by IBT and supplied by any
Authorized Person in connection with the calculation of (i) the net asset value
and public offering price of the shares of capital stock of the Fund or (ii) the
Yield Calculation; or
(c) Any acts of God, earthquakes, fires, floods, storms or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation, the unavailability of energy sources
and other similar happenings or events.
7.2 Notwithstanding anything to the contrary in this Agreement, in
no event shall IBT or the Indemnified Parties be liable to the Fund or any third
party for lost profits or lost revenues or any special, consequential, punitive
or incidental damages of any kind whatsoever in connection with this Agreement
or any activities hereunder.
8. TERMINATION.
8.1 The term of this Agreement shall be three years commencing upon
the effective date of the Fund's registration statement (the "Initial Term"),
unless earlier terminated as provided herein. After the expiration of the
Initial Term, the term of this Agreement shall automatically renew for
successive one-year terms (each a "Renewal Term") unless (i) the Fund delivers a
notice of non-renewal to IBT no later than six months prior to the expiration of
the Initial Term, or (ii) IBT delivers a notice of non-renewal to the Fund no
later than one year prior to the expiration of the Initial Term.
(a) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within 90 days of receipt of such notice.
(b) The Fund may terminate this Agreement during any Renewal Term
upon six months written notice to IBT. IBT may terminate this Agreement during
any Renewal term upon one year notice to the Fund. Any termination pursuant to
this paragraph 7.1(b) shall be effective upon expiration of such notice period.
8.2 The Fund shall reimburse IBT for any reasonable expenses
incurred by IBT in connection with the termination of this Agreement.
8.3 At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of IBT relating
to its performance of its duties as hereunder.
9. PROPERTY OF THE FUND AND CONFIDENTIALITY.
9.1 The Fund's records, including all those maintained hereunder by
the Bank, whether in magnetic media, hard copy, film form or other format, shall
be the Fund's property for all purposes, and the Bank shall treat confidentially
and as proprietary information of the fund all such records and other
information relative to the Fund which is not independently available to the
Bank or in the public domain, and shall use such records only in connection with
the performance of its duties hereunder and for no other purpose. In particular,
the Bank agrees:
(a) that all information and data so acquired by it or its
employees, agents or contractors under this Agreement, or in contemplation
thereof, shall be and shall remain the Fund's exclusive property;
(b) to inform its employees, agents or contractors engaged in
handling such information and data of the confidential nature of such
information and data;
(c) to limit access to such information and data to authorized
employees, agents or contractors of the Bank and the Fund who have a need to
know and use such information and data in connection with this Agreement and the
services to be supplied herein;
(d) to keep, and have their employees, agents and contractors keep ,
any and all such information and data confidential;
(e) not to copy or publish or disclose such information and data to
others or authorize their employees, agents, contractors or anyone else, to copy
or publish or disclose such information and data to others without the other
party's prior written approval, except if required by a state or federal court
or agency, and in such an event prompt written notice of such disclosure
requirement shall be provided to the other party if permitted by law; and
(f) that upon termination of this Agreement, all records and other
confidential information of the Fund in the possession of the Bank shall be
returned to the Fund or its designated successor custodian, offshore agent,
administrator, subadministrator or fund accountant, as provided herein.
The confidentiality provisions noted above will survive termination of
this Agreement for a period of two years.
The parties further agree that this Agreement will be considered
confidential during the term of its existence, that access to it will be limited
to those employees, agents, contractors or other persons who have a need to know
of or utilize the Agreement (including, without being limited to, the fund's
Board of Directors or Trustees, the auditors and counsel to the Fund, and
Deutsche Fund Management, Inc. or any of its affiliates), and that neither party
will publish or disclose the Agreement to others without the other party's prior
written approval except if required by a state or federal court or agency, and
in such event prompt written notice of such disclosure requirement shall be
provided to the other party if permitted by law.
9.2 RELIEF. The Bank recognizes that the property and proprietary
information of the Fund is unique, and that the Fund cannot be fully compensated
by money damages and would be irreparably harmed by the disclosure of its
confidential information and data in violation of the provisions of Paragraph
9.1. The Bank therefore agrees that the Fund may seek immediate relief at equity
for any failure to comply with Paragraph 9.1 hereof, in addition to any other
remedies the Fund may have in law or in equity.
10. CONFIDENTIALITY OF IBT INFORMATION. The Fund agrees that any
non-public information obtained hereunder concerning IBT is confidential and may
not be disclosed without the prior written consent of IBT, except as may be
required by applicable law or at the request of a governmental agency. The Fund
further agrees that a breach of this provision would irreparably damage IBT and
the Fund accordingly agrees that IBT is entitled, in addition to all other
remedies at law or in equity, to an injunction or injunctions without bond or
other security to prevent breaches of this provision.
11. SERVICE LEVEL STANDARDS. Subject to the non-occurrence of an event of
force majeure and the performance of the Fund's obligations described in this
Agreement, the Company agrees that the services will be provided in accordance
with the service level standards specified in APPENDIX D hereto. IBT's fees will
be adjusted based upon performance based reductions as described in APPENDIX D.
12. NOTICES. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (i) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) had delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
Deutsche Family of Funds, Inc.
c/o Deutsche Fund Management, Inc.
31 W. 52nd Street
New York, NY 10019
Attention: President
(b) In the case of notices sent to IBT to:
IBT Fund Services (Canada) Inc.
1 First Canadian, King Street West
Suite 2800
PO Box 231
Toronto, Canada M5X1C8
Attention:
With a copy to: John E. Henry, General Counsel
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
or at such other place as such party may from time to time designate
in writing.
13. AMENDMENTS. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties.
14. PARTIES. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of IBT or by IBT without the written consent of the
Fund, authorized and approved by its Board; and provided further that
termination proceedings pursuant to Section 8 hereof will not be deemed to be an
assignment within the meaning of this provision.
15. GOVERNING LAW. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
17. ENTIRE AGREEMENT. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
18. LIMITATION OF LIABILITY. IBT is hereby expressly put on notice of the
limitation of liability set forth in the Declaration of Trust of the Fund and
agrees that the obligations assumed by the Fund hereunder shall be limited in
all cases to the assets of the Fund and that IBT shall not seek satisfaction of
any such obligation from the officers, agents, employees, trustees, or
shareholders of the Fund.
19. SIGNATURE LICENSE. IBT shall remain a licensee of Signature Financial
Group, Inc. with respect to the trademarks of Hub(R) and Spoke(R)2 and related
proprietary rights during the term of this Agreement.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
DEUTSCHE FAMILY OF FUNDS, INC.
By: /S/ BRIAN LEE
Name: Brian Lee
Title: President
By: /S/ JOSEPH CHEUNG
Name: Joseph Cheung
Title: Treasurer
IBT FUND SERVICES (CANADA) INC.
By:/S/ ROBERT D. MANCUSO
Name: Robert D. Mancuso
Title: Senior Vice President
APPENDIX A
FUNDS
Deutsche European Mid-Cap Fund
Deutsche German Equity Fund
Deutsche Japanese Equity Fund
Deutsche Global Bond Fund
Deutsche European Bond Fund
Deutsche Top 50 World
Deutsche Top 50 Europe
Deutsche Top 50 Asia
Deutsche Top 50 US
Deutsche US Money Market Fund
Deutsche Institutional US Money Market Fund
Exhibit 15 under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
DISTRIBUTION AND SERVICE PLAN
This Distribution and Service Plan ("Plan", which term includes both the
Distribution Plan and the Services Plan hereinafter defined) is adopted as of
July 28, 1997 by the Board of Directors business trust "Trustees" "Directors" of
Deutsche Funds, Inc. (the "Corporation business trust "Trust" "Corporation" "),
a Maryland corporation, business trust "Massachusetts business trust" "" with
respect to certain classes of shares ("Classes") of the portfolios of the
Corporation business trust "Trust" "Corporation" (the "Funds") set forth in
exhibits hereto.
1. This Plan is adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended ("Act"), so as to allow the Corporation business
trust "Trust" "Corporation" (a) to make payments as contemplated herein in
conjunction with the distribution (the "Distribution Plan") of Classes of
the Funds ("Shares") and (b) to make payments as contemplated herein to
obtain services to holder of Shares, including personal services relating
to shareholder accounts, and other assistance regarding the provision of
Fund information to investors and financial institutions ("Financial
Institutions").
2. The Distribution Plan is designed to finance activities of Edgewood
Services, Inc. ("Edgewood") principally intended to result in the sale of
Shares to include: (a) providing incentives to Financial Institutions to
sell Shares; (b) advertising and marketing of Shares to include preparing,
printing and distributing prospectuses and sales literature to prospective
shareholders and with Financial Institutions; and (c) implementing and
operating the Distribution Plan. In compensation for services provided
pursuant to the Distribution Plan, Edgewood will be paid a fee in respect
of the Classes of the Funds set forth on the applicable exhibit.
3. Any payments to Edgewood in accordance with the Distribution Plan will be
made pursuant to the "Distributor's Contract" entered into by the
Corporation business trust "Trust" "Corporation" and Edgewood. Any payments
made by Edgewood to Financial Institutions with funds received as
compensation under the Distribution Plan will be made pursuant to the
"Mutual Funds Sales and Service Agreement" entered into by Edgewood and the
Financial Institution (a "Financial Institution Agreement").
4. Edgewood has the right (i) to select, in its sole discretion, the Financial
Institutions to participate in the Distribution Plan and (ii) to terminate
without cause and in its sole discretion any Financial Institution
Agreement with respect to the Distribution Plan.
5. The Service Plan is designed to compensate Deutsche Fund Management, Inc.
("DFM") for (a) performing personal services relating to shareholder
accounts, including answering shareholder inquiries and providing reports
and other information to shareholders and Financial Institutions and
performing other services related to the maintenance of shareholder
accounts (collectively, "Shareholder Services"), (b) making payments to
Financial Institutions that perform Shareholder Services, (c) coordinating
the activities of Financial Institutions that perform Shareholder Services
and providing Fund information to shareholders, potential investors and
Financial Institutions, and (d) performing other services related to the
foregoing. In compensation for services provided pursuant to the Service
Plan, DFM will be paid a monthly fee with respect to the Classes of the
Funds set forth on the applicable exhibit computed at the annual rate of
.25 of 1% of the average daily net asset vaue of the Shares of such Class.
6. Any payments made to DFM in accordance with the Service Plan will be made
pursuant to a "Services Agreement." Any payments made by DFM to Financial
Institutions with funds received as compensation under the Service Plan
will be made pursuant to a written agreement, which may be included as
part of the relevant "Mutual Fund Sales and Service Agreement."
7. DFM has the right (i) to select, in its sole discretion, the Financial
Institutions to participate in the Service Plan and (ii) to terminate
without cause and in its sole discretion any Financial Institution
Agreement with respect to the Service Plan.
8. Quarterly in each year that this Plan remains in effect, Edgewood and DFM
shall prepare and furnish to the Board of Directors business trust
"Trustees" "Directors" of the Corporation
"Trust" "Corporation" , and the Board of
Directors "Trustees"
"Directors" shall review, a written report of the amounts expended under
the Distribution Plan and Service Plan, respectively, and the purpose for
which such expenditures were made.
9. This Plan shall become effective with respect to each Class (i) after
approval by majority votes of: (a) the Corporation "Trust" "Corporation" 's
Board of Directors "Trustees" "Directors" ; (b) the members of the Board of
Directors of the Corporation "Trust" "Corporation" who are not interested
persons of the Corporation "Trust" "Corporation" and have no direct or
indirect financial interest in the operation of this Plan or in any related
documents to this Plan ("Disinterested Directors "Trustees" "Directors" "),
cast in person at a meeting called for the purpose of voting on this Plan;
and (c) the outstanding voting securities of the particular Class , as
defined in Section 2(a)(42) of the Act and (ii) upon execution of an
exhibit adopting this Plan with respect to such Class.
10. This Plan shall remain in effect with respect to each Class presently set
forth on an exhibit and any subsequent Classes added pursuant to an exhibit
during the initial year of this Plan for the period of one year from the
date set forth above and may be continued thereafter if this Plan is
approved with respect to such Class at least annually by a majority of the
Corporation business trust "Trust" "Corporation" 's Board of Directors
business trust "Trustees" "Directors" and a majority of the Disinterested
Directors "Trustees"
"Directors" , cast in person at a meeting called for the purpose of voting
on such Plan. If this Plan is adopted with respect to a Class after the
first annual approval by the Directors business trust "Trustees"
"Directors" as described above, this Plan will be effective as to that
Class upon execution of the applicable exhibit pursuant to the provisions
of paragraph 6(ii) above and will continue in effect until the next annual
approval of this Plan with respect to that Class by the Directors
"Trustees" "Directors" and
thereafter for successive periods of one year subject to approval as
described above.
11. All material amendments to this Plan must be approved by a vote of the
Board of Directors
"Trustees" "Directors" of the Corporation
"Trust" "Corporation" and of the Disinterested
Directors "Trustees"
"Directors" , cast in person at a meeting called for the purpose of voting
on it.
12. This Plan may not be amended in order to increase materially the costs
which any Class may bear for distribution pursuant to this Plan without
being approved by a majority vote of the outstanding voting securities of
such Class as defined in Section 2(a)(42) of the Act.
13. This Plan (or only the Service Plan or the Distribution Plan) may be
terminated with respect to a particular Class at any time by: (a) a
majority vote of the Disinterested Directors
"Trustees" "Directors" ; or (b) a vote of a majority
of the outstanding voting securities of the particular Class as defined in
Section 2(a)(42) of the Act; (c) in the case of the Distribution Plan, by
Edgewood on 60 days' notice to the Corporation; or (d) in the case of the
Service Plan, by DFM on 60 days' notice to the Corporation
"Trust" "Corporation" .
14. While this Plan shall be in effect, the selection and nomination of
Disinterested Directors "Trustees" "Directors" of the
Corporation "Trust"
"Corporation" shall be committed to the discretion of the Disinterested
Directors "Trustees" "Directors" then in office.
15. All agreements with any person relating to the implementation of this Plan
shall be in writing and any agreement related to this Plan shall be
approved by the vote specified in Paragraph 9(a) and (b) herein and shall
be subject to termination, without penalty, pursuant to the provisions of
Paragraph 13 herein, provided, however, that the identity of a particular
Financial Institution executing any such related agreement may be ratified
by the vote required by Paragraph 9(a) and (b) herein at the next
quarterly meeting of the Board of Directors of the Corporation.
16. This Plan shall be construed in accordance with and governed by the laws of
the State of New York.
<PAGE>
EXHIBIT A
to the
Distribution and Service Plan
CLASSES IN DISTRIBUTION PLAN
Deutsche European Mid-Cap Fund Class B Shares
Deutsche European Bond Fund Class B Shares
Deutsche German Equity Fund Class B Shares
Deutsche Global Bond Fund Class B Shares
Deutsche Japanese Equity Fund Class B Shares
Deutsche Top 50 Asia Class B Shares
Deutsche Top 50 Europe Class B Shares
Deutsche Top 50 US Class B Shares
Deutsche Top 50 World Class B Shares
Deutsche US Money Market Fund Class B shares
The Distribution Plan is adopted by the Corporation with respect to the Classes
of Shares of the portfolios of the Corporation
"Trust" "Corporation" set forth above.
In compensation for the services provided pursuant to the Distribution Plan,
Edgewood will be paid a monthly fee computed at the annual rate of 0.75% of the
average aggregate net asset value of the Classes of Shares of portfolios of the
Corporation set forth above.
Witness the due execution hereof this 28th day of July, 1997.
By:/S/ BRIAN LEE
President
<PAGE>
EXHIBIT B
to the
Distribution and Service Plan
CLASSES IN SERVICE PLAN
Class A Shares and Class B
Shares of:
Deutsche European Mid-Cap Fund
Deutsche German Equity Fund
Deutsche Japanese Equity Fund
Deutsche Global Bond Fund
Deutsche European Bond Fund
Deutsche Top 50 World
Deutsche Top 50 Europe
Deutsche Top 50 Asia
Duetsche Top 50 US
Retail Class Shares of
Deutsche US Money Market Fund
The Service Plan is adopted by the Corporation with respect to the Classes of
Shares of the portfolio of the Corporation "Trust" "Corporation" set
forth above.
Witness the due execution hereof this 28th day of July, 1997.
By:/S/ BRIAN LEE
President
Exhibit 9(c) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SERVICES AGREEMENT
AGREEMENT made as of the 28th day of July, 1997, by and between Deutsche Funds,
Inc. (the Company), the series of which are listed on Exhibit 1, as may be
amended from time to time (individually referred to herein as a "Fund" and
collectively as "Funds"), having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 and having approved a
Distribution and Services Plan (the "Plan") and Deutsche Fund Management, Inc.,
a Delaware corporation, having its principal office and place of business at 31
West 52nd Street, 29th Floor, New York, New York 10019 ("DFM").
1. The Funds
hereby appoint DFM to render or cause to be rendered personal and other services
to shareholders of the classes of shares of the Funds set for on Exhibit 1
("Classes"), including (a) performing personal services relating to shareholder
accounts, including answering shareholder inquiries and providing reports and
other information to shareholders and financial institutions ("Financial
Institutions") and performing other services related to the maintenance of
shareholder accounts (collectively, "Shareholder Services"), (b) making payments
to Financial Institutions that perform Shareholder Services, (c) coordinating
the activities of Financial Institutions that perform Shareholder Services and
providing Fund information to shareholders, potential investors and Financial
Institutions, and (d) performing other services related to the foregoing which,
in its best judgment (subject to the supervision of the Board of Directors of
the Company) are necessary or desirable for shareholders of the Classes
(collectively, "Services"). DFM hereby accepts such appointment. DFM further
agrees to provide the Funds, upon request, a written description of the Services
which DFM is providing hereunder. Any payment made by DFM to Financial
Institutions with funds received as services fees hereunder will be made
pursuant to the Mutual Funds Sales and Service Agreement entered into by DFM and
the Company's Distributor with such Financial Institution.
2. During the term of
this Agreement, each Fund will pay DFM and DFM agrees to accept as full
compensation for its services rendered hereunder a services fee at an annual
rate, calculated daily and payable monthly, of 0.25% of the average net assets
of each Class listed on Exhibit 1. For the payment period in which this
Agreement becomes effective or terminates with respect to any Fund, there shall
be an appropriate proration of the monthly fee on the basis of the number of
days that this Agreement is in effect with respect to such Fund during the
month.
3. This Agreement shall continue in effect for one year from the date of
its execution, and thereafter for successive periods of one year only if this
Agreement is approved with respect to each Class at least annually by the Board
of the Company, including a majority of the members of the Board with respect to
each Class who are not interested persons of the Company (within the meaning of
the Investment Company Act of 1940, as amended (the "1940 Act")) and have no
direct or indirect financial interest in the operation of the Funds' Plan or in
any related agreements ("Independent Board Members") cast in person at a meeting
called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be
terminated with respect to any Class as follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members or by a vote of a majority of
the outstanding voting securities of such Class as defined in the
Investment Company Act of 1940 on sixty (60) days' written notice to the
parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as defined in
the 1940 Act; and
(c) by any party to the Agreement without cause by giving the other party
at least sixty (60) days' written notice of its intention to terminate.
5. DFM agrees to obtain any taxpayer identification number certification from
each shareholder of the Classes to which it provides Services that is required
under Section 3406 of the Internal Revenue Code, and any applicable Treasury
regulations, and to provide the Company or its designee with timely written
notice of any failure to obtain such taxpayer identification number
certification in order to enable the implementation of any required backup
withholding. 6. DFM shall not be liable for any error of judgment or mistake of
law or for any loss suffered by any Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement. DFM
shall be entitled to rely on and may act upon advice of counsel (who may be
counsel for such Fund) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice. Any person, even
though also an officer, trustee, partner, employee or agent of DFM, who may be
or become a member of the Company's Board or an officer, employee or agent,
shall be deemed, when rendering services to a Fund or acting on any business of
such Fund (other than services or business in connection with the duties of DFM
hereunder) to be rendering such services to or acting solely for such Fund and
not as an officer, trustee, partner, employee or agent or one under the control
or direction of DFM even though paid by DFM. This Section 6 shall survive
termination of this Agreement. 7. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which an enforcement of the change, waiver,
discharge or termination is sought. 8. Notices of any kind to be given hereunder
shall be in writing (including facsimile communication) and shall be duly given
if delivered to any Fund and to such Fund at the following address: Federated
Investors Tower, Pittsburgh, PA 15222-3779 and if delivered to DFM at 31 West
52nd Street, 29th Floor, New York, New York 10019, Attention: President.
9. This Agreement constitutes the entire agreement between the parties hereto
and
supersedes any prior agreement with respect to the subject hereof whether oral
or written. If any provision of this Agreement shall be held or made invalid by
a court or regulatory agency decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby. Subject to the provisions of
Sections 3 and 4, hereof, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and shall
be governed by Pennsylvania law; provided, however, that nothing herein shall be
construed in a manner inconsistent with the 1940 Act or any rule or regulation
promulgated by the Securities and Exchange Commission thereunder. 10. This
Agreement may be executed by different parties on separate counterparts, each of
which, when so executed and delivered, shall be an original, and all such
counterparts shall together constitute one and the same instrument. 11. This
Agreement shall not be assigned by any party without the prior written consent
of DFM in the case of assignment by the Company, or of the Company in the case
of assignment by DFM, except that any party may assign to a successor all of or
a substantial portion of its business to a party controlling, controlled by, or
under common control with such party. Nothing in this Section 11 shall prevent
DFM from delegating its responsibilities to another entity to the extent
provided herein. 12. DFM acknowledges that this Agreement is a "related
agreement" with respect to the Plan within the meaning of Rule 12b-1 under the
1940 Act and agrees to comply with the terms and conditions applicable to this
Agreement under Rule 12b-1 and the Plan.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
Attest: Deutsche Funds, Inc.
/S/ JOSEPH CHEUNG By:/S/ ROBERT GAMBEE
Title: SECRETARY
Attest: Deutsche Fund Management, Inc.
/S/ JOSEPH CHEUNG By:/S/ BRIAN LEE
Title: PRESIDENT
By:/S/ LINNAE LATTISON
Title: Assistant Treasurer
<PAGE>
EXHIBIT 1
DEUTSCHE EUROPEAN MID-CAP FUND, CLASS A AND CLASS B SHARES
DEUTSCHE GERMAN EQUITY FUND, CLASS A AND CLASS B SHARES
DEUTSCHE JAPANESE EQUITY FUND, CLASS A AND CLASS B SHARES
DEUTSCHE GLOBAL BOND FUND, CLASS A AND CLASS B SHARES
DEUTSCHE EUROPEAN BOND FUND, CLASS A AND CLASS B SHARES
DEUTSCHE TOP 50 WORLD, CLASS A AND CLASS B SHARES
DEUTSCHE TOP 50 EUROPE, CLASS A AND CLASS B SHARES
DEUTSCHE TOP 50 ASIA, CLASS A AND CLASS B SHARES
DEUTSCHE TOP 50 US, CLASS A AND CLASS B SHARES
DEUTSCHE US MONEY MARKET FUND, CLASS A AND CLASS B SHARES
Exhibit 6(b) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
MUTUAL FUNDS
SALES AND SERVICE
AGREEMENT
This Agreement is entered into among the financial institution executing
this Agreement ("Financial Institution"), Edgewood Services, Inc. ("Edgewood"),
and Deutsche Fund Management, Inc. ("DFM"), with respect to those series or
portfolios listed in Exhibit A hereto (referred to individually as the "Fund"
and collectively as the "Funds") of Deutsche Funds, Inc. (the "Company") for
whose shares of beneficial interest or capital stock ("Shares") Edgewood serves
as Distributor and for whom DFM provides or coordinates shareholder services.
A. FINANCIAL INSTITUTION.
1. STATUS OF FINANCIAL INSTITUTION AS "BANK" OR REGISTERED BROKER-DEALER.
Financial Institution represents and warrants to Edgewood and DFM:
(a)(i)that it is a broker or dealer as defined in Section 3(a)(4) or
3(a)(5) of the Securities Exchange Act of 1934 ("Exchange Act");
that it is registered with the Securities and Exchange Commission
pursuant to Section 15 of the Exchange Act; that it is a member of
the National Association of Securities Dealers, Inc.; that its
customers' accounts are insured by the Securities Investors
Protection Corporation ("SIPC"); and that, during the term of this
Agreement, it will abide by all of the rules and regulations of the
NASD including, without limitation, the NASD Rules of Fair Practice.
Financial Institution agrees to notify Edgewood immediately in the
event of (1) the termination of its coverage by the SIPC; (2) its
expulsion or suspension from the NASD, or (3) its being found to
have violated any applicable federal or state law, rule or
regulation arising out of its activities as a broker-dealer or in
connection with this Agreement, or which may otherwise affect in any
material way its ability to act in accordance with the terms of this
Agreement. Financial Institution's expulsion from the NASD will
automatically terminate this Agreement immediately without notice.
Suspension of Financial Institution from the NASD for violation of
any applicable federal or state law, rule or regulation will
terminate this Agreement effective immediately upon Edgewood's
written notice of termination to Financial Institution; or
(a)(ii) that it is a "bank," as that term is defined in Section 3(a)(6) of
the Exchange Act and that, during the term of this Agreement, it
will abide by the rules and regulations of those state and federal
banking authorities with appropriate jurisdiction over the Financial
Institution, especially those regulations dealing with the
activities of the Institution as described under this Agreement.
Financial Institution agrees to notify Edgewood or DFM immediately
of any action by or communication from state or federal banking
authorities, state securities authorities, the Securities and
Exchange Commission, or any other party which may affect its status
as a bank, or which may otherwise affect in any material way its
ability to act in accordance with the terms of this Agreement. Any
action or decision of any of the foregoing regulatory authorities or
any court of appropriate jurisdiction which affects Financial
Institution's ability to act in accordance with the terms of this
agreement, including the loss of its exemption from registration as
a broker or dealer, will terminate this Agreement effective upon
Edgewood's written notice of termination to Financial Institution;
AND
(b) that Financial Institution is registered with the appropriate
securities authorities in all states in which its activities make
such registration necessary.
2. FINANCIAL INSTITUTION ACTS AS AGENT FOR ITS CUSTOMERS.
The parties agree that in each transaction in the Shares of any Fund and
with regard to any services rendered pursuant to this Agreement: (a) Financial
Institution is acting as agent for the customer; (b) each transaction is
initiated solely upon the order of the customer; (c) as between Financial
Institution and its customer, the customer will have full beneficial ownership
of all Shares of the Funds; (d) each transaction shall be for the account of the
customer and not for Financial Institution's account; and (e) each transaction
shall be without recourse to Financial Institution provided that Financial
Institution acts in accordance with the terms of this Agreement. Financial
Institution shall not have any authority in any transaction to act as Edgewood's
agent or as agent for the Funds.
B. SALES OF FUND SHARES.
3. EXECUTION OF ORDERS FOR PURCHASE AND REDEMPTION OF SHARES.
(a) All orders for the purchase of any Shares shall be executed at the
then-current public offering price per share (i.e., the net asset value per
share plus the applicable initial sales load, if any) and all orders for the
redemption of any Shares shall be executed at the net asset value per share
of the applicable Class, in each case as described in the prospectus of the
Fund. Any applicable redemption fee or deferred sales charge will be
deducted by the Fund prior to the transmission of the redemption proceeds to
Financial Institution or its customer. Edgewood and the Funds reserve the
right to reject any purchase request in their sole discretion . If required
by law, each transaction shall be confirmed in writing on a fully disclosed
basis and, if confirmed by Edgewood, a copy of each confirmation shall be
sent simultaneously to Financial Institution if Financial Institution so
requests.
(b) The procedures relating to all orders will be subject to the terms of the
prospectus of each Fund and Edgewood's written instructions to Financial
Institution from time to time.
(c) Payments for Shares shall be made as specified in the applicable Fund
prospectus. If payment for any purchase order is not received in accordance
with the terms of the applicable Fund prospectus, Edgewood reserves the
right, without notice, to cancel the sale and to hold Financial Institution
responsible for any loss sustained as a result thereof.
4. INITIAL SALES LOADS PAYABLE TO FINANCIAL INSTITUTION.
(a) On each order accepted by Edgewood, in exchange for the performance of sales
and/or distribution services, Financial Institution will be entitled to
receive the applicable dealer concession provided in the then current
Prospectus of the applicable Fund, subject to any adjustment in the rate of
such concession referred to below, from the amount paid by Financial
Institution's customer . The initial sales loads for any Fund shall be those
set forth in its prospectus. The rate of the dealer concession payable to
Financial Institution may be changed at any time at Edgewood's sole
discretion upon written notice to Financial Institution.
(b) Transactions may be settled by Financial Institution: (1) by payment of the
full purchase price less an amount equal to Financial Institution's
applicable percentage of the initial sales load, or (2) by payment of the
full purchase price, in which case Financial Institution shall receive, not
less frequently than monthly, the aggregate fees due it on orders received
and settled.
(c) It shall be the obligation of the Financial Institution either: (i) to
provide Edgewood with all necessary information regarding the application of
the appropriate initial sales load to each transaction, or (ii) to assess
the appropriate initial sales load for each transaction and to forward the
public offering price, net of the amount of the initial sales load to be
reallocated to the Financial Institution, to the appropriate Fund. Neither
the Fund nor Edgewood shall have any responsibility to correct the payment
or assessment of an incorrect initial sales load due to the failure of the
Financial Institution to fulfill the foregoing obligation.
5. ADVANCE COMMISSIONS PAYABLE TO FINANCIAL INSTITUTION.
Upon the purchase of certain Shares, as described in the applicable
prospectuses, Edgewood will pay Financial Institution an advance commission as
set forth on Exhibit A (or, if more recently published, the Fund's current
prospectus). This amount is not to be considered an initial sales load and
should not be deducted from the public offering price of the Shares which shall
be forwarded to the Fund. Generally, a contingent deferred sales charge ("CDSC")
will be assessed upon the redemption of Shares with regard to which an advance
commission is paid by Edgewood; in the event that Financial Institution notifies
Edgewood in writing that Financial Institution elects to waive such advance
commission, and if the Fund's prospectus permits such a waiver, the CDSC will
not be charged upon the redemption of the relevant Shares. To receive advance
commission from Edgewood on Shares that are subject to a CDSC, Financial
Institution must open investor accounts with the Fund on a fully-disclosed basis
or be able to account for share ownership periods used in calculating the CDSC.
Furthermore, should the custody (or record ownership) of the shares of the
investor account(s) be transferred during the applicable CDSC holding period (as
described in the Fund prospectus) to a financial institution which does not
maintain investor accounts on a fully disclosed basis and does not account for
share ownership periods, the Financial Institution agrees to reimburse Edgewood
prior to such transfer for advance commissions paid to it by Edgewood.
C. DISTRIBUTION SERVICES.
6. AGREEMENT TO PROVIDE DISTRIBUTION SERVICES.
(a) With regard to those Funds which pay distribution fees (pursuant to
Distribution and Service Plans ("Plans") adopted for the Funds under
Investment Company Act Rule 12b-1), as noted on Exhibit A hereto (or, if
more recently published, the Fund's current prospectus), Edgewood hereby
appoints Financial Institution to render or cause to be rendered
distribution and sales services to the Funds and their shareholders.
(b) The services to be provided under this Paragraph (a) may include, but are
not limited to, the following:
(i) reviewing the activity in Fund accounts;
(ii)providing training and supervision of its personnel;
(iii) maintaining and distributing current copies of prospectuses and
shareholder reports;
(iv)advertising the availability of its services and products;
(v) providing assistance and review in designing materials to send to
customers and potential customers and developing methods of making such
materials accessible to customers and potential customers; and
(vi)responding to customers' and potential customers' questions about
the Funds.
7. DISTRIBUTION FEES PAYABLE TO FINANCIAL INSTITUTION.
During the term of this Agreement, Edgewood will pay Financial Institution
each month distribution fees (also known as "Rule 12b-1 Fees") for each Class as
set forth in Exhibit A to this Agreement (or, if more recently published, the
Fund's current prospectus), subject to the terms and conditions of the Plans.
For the payment period in which this Agreement becomes effective or terminates,
there shall be an appropriate proration of the fee on the basis of the number of
days that this Agreement is in effect during the month.
D. SHAREHOLDER SERVICES.
8. AGREEMENT TO PROVIDE SHAREHOLDER AND ACCOUNT MAINTENANCE SERVICES.
With regard to those Classes which pay a Shareholder Services Fee to
Deutsche Fund Management, Inc., as noted on Exhibit A hereto (or, if more
recently published, the Fund's current prospectus), Financial Institution agrees
to render or cause to be rendered personal services to shareholders of the Funds
and/or the maintenance of accounts of shareholders of the Funds ("Shareholder
Services") within the meaning of, and subject to the terms and conditions of,
the Plans. Financial Institution further agrees to provide DFM, upon request, a
written description of the Shareholder Services which Financial Institution is
providing hereunder.
9. SHAREHOLDER SERVICE FEES PAYABLE TO FINANCIAL INSTITUTION.
During the term of this Agreement, DFM will pay Financial Institution
Shareholder Service Fees as set forth in Exhibit A to this Agreement (or, if
more recently published, the Fund's current prospectus), subject to the terms
and conditions of the Plans. For the payment period in which this Agreement
becomes effective or terminates, there shall be an appropriate proration of the
fee on the basis of the number of days that this Agreement is in effect during
the quarter.
<PAGE>
E. SUPPLEMENTAL PAYMENTS.
10. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTION.
During the term of this Agreement, Edgewood, DFM, or their affiliates may
make Supplemental Payments to Financial Institution if and as set forth in
Exhibit A to this Agreement (or, if more recently published, the Fund's current
prospectus) as additional compensation for services described in Paragraphs 6 or
8, above; such payments will be made from the assets of Edgewood, DFM, or their
affiliates, and not from assets of the Funds nor from fees payable under
applicable Plans. For the payment period in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the payments
on the basis of the number of days that this Agreement is in effect during the
quarter.
F. MISCELLANEOUS.
11. DELIVERY OF PROSPECTUSES TO CUSTOMERS.
Financial Institution will deliver or cause to be delivered to each
customer, at or prior to the time of any purchase of Shares, a copy of the
current prospectus of the applicable Fund and, upon request by a customer or
shareholder, a copy of the applicable Fund's current Statement of Additional
Information. Financial Institution shall not make any representations concerning
any Shares other than those contained in the prospectus or Statement of
Additional Information of the Fund or in any promotional materials or sales
literature furnished to Financial Institution by Edgewood or the Fund.
12. ERISA ASSETS.
(a)Financial Institution understands that the Department of Labor views ERISA
as prohibiting fiduciaries of discretionary ERISA assets from receiving
administrative service fees or other compensation from funds in which the
fiduciary's discretionary ERISA assets are invested. To date, the Department
of Labor has not issued any exemptive order or advisory opinion that would
exempt fiduciaries from this interpretation. Without specific authorization
from the Department of Labor, fiduciaries should carefully avoid investing
discretionary assets in any fund pursuant to an arrangement where the
fiduciary is to be compensated by the fund for such investment. Receipt of
such compensation could violate ERISA provisions against fiduciary
self-dealing and conflict of interest and could subject the fiduciary to
substantial penalties.
(b) Financial Institution will not perform or provide any duties which would
cause it to be a fiduciary under Section 4975 of the Internal Revenue Code,
as amended. For purposes of that Section, Financial Institution understands
that any person who exercises any discretionary authority or discretionary
control with respect to any individual retirement account or its assets, or
who renders investment advice for a fee, or has any authority or
responsibility to do so, or has any discretionary authority or discretionary
responsibility in the administration of such an account, is a fiduciary.
13. INDEMNIFICATION.
(a) Financial Institution shall indemnify and hold harmless Edgewood, DFM, each
Fund, the transfer agent of the Company, and their respective subsidiaries,
affiliates, officers, directors, agents and employees from all direct or
indirect liabilities, losses or costs (including attorneys fees) arising
from, related to or otherwise connected with: (1) any breach by Financial
Institution of any provision of this Agreement; or (2) any actions or
omissions of Edgewood, DFM, any Fund, the transfer agent, and their
subsidiaries, affiliates, officers, directors, agents and employees in
reliance upon any oral, written or computer or electronically transmitted
instructions believed to be genuine and to have been given by or on behalf
of Financial Institution.
(b) Edgewood agrees to indemnify and hold harmless the Company, each of its
Directors, each of its officers who have signed the Registration Statement
and each other person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act, but only with respect to statements or
omissions, if any, made in the Registration Statement or any Prospectus,
SAI, or any amendment or supplement thereof in reliance upon, and in
conformity with, information furnished to the Company about Edgewood by or
on behalf of Edgewood expressly for the use in the Registration Statement or
any Prospecuts, SAI, or any amendment or supplement thereof. In case any
action shall be brought against the Company or any other person so
indemnified based on the Registration Statement or any Prospectus, SAI, or
any amendment or supplement thereof, and with respect to which indemnity may
be sought against Edgewood, Edgewood shall have the rights and duties given
to the Company, and the Company and each other person so indemnified shall
have the rights and duties given to Edgewood by the provisions of subsection
(a) above.
(c) DFM shall indemnify and hold harmless Financial Institution and its
subsidiaries, affiliates, officers, directors, agents and employees from and
against any and all direct or indirect liabilities, losses or costs
(including attorneys fees) arising from, related to or otherwise connected
with any breach by DFM of any provision of this Agreement.
(d) The agreement of the parties in this Paragraph to indemnify each other is
conditioned upon the party entitled to indemnification (Indemnified Party)
giving notice to the party required to provide indemnification (Indemnifying
Party) promptly after the summons or other first legal process for any claim
as to which indemnity may be sought is served on the Indemnified Party. The
Indemnified Party shall permit the Indemnifying Party to assume the defense
of any such claim or any litigation resulting from it, provided that counsel
for the Indemnifying Party who shall conduct the defense of such claim or
litigation shall be approved by the Indemnified Party (which approval shall
not unreasonably be withheld), and that the Indemnified Party may
participate in such defense at its expense. The failure of the Indemnified
Party to give notice as provided in this subparagraph (c) shall not relieve
the Indemnifying Party from any liability other than its indemnity
obligation under this Paragraph. No Indemnifying Party, in the defense of
any such claim or litigation, shall, without the consent of the Indemnified
Party, consent to entry of any judgment or enter into any settlement that
does not include as an unconditional term the giving by the claimant or
plaintiff to the Indemnified Party of a release from all liability in
respect to such claim or litigation.
(e) The provisions of this Paragraph 13 shall survive the termination of this
Agreement.
14. CUSTOMER NAMES PROPRIETARY TO FINANCIAL INSTITUTION.
(a) The names of Financial Institution's customers are and shall remain
Financial Institution's sole property and shall not be used by Edgewood,
DFM, or their affiliates for any purpose except the performance of their
respective duties and responsibilities under this Agreement and except for
servicing and informational mailings relating to the Funds. Notwithstanding
the foregoing, this Paragraph 14 shall not prohibit Edgewood, DFM, or any of
their affiliates from utilizing the names of Financial Institution's
customers for any purpose if the names are obtained in any manner other than
from Financial Institution pursuant to this Agreement.
(b) Neither party shall use the name of the other party in any manner without
the other party's written consent, except as required by any applicable
federal or state law, rule or regulation, and except pursuant to any
mutually agreed upon promotional programs.
(c) The provisions of this Paragraph 14 shall survive the termination of this
Agreement.
15. SECURITY AGAINST UNAUTHORIZED USE OF FUNDS' RECORDKEEPING SYSTEMS.
Financial Institution agrees to provide such security as is necessary to
prevent any unauthorized use of the Funds' recordkeeping system, accessed via
any computer hardware or software provided to Financial Institution by Edgewood
or DFM.
16. SOLICITATION OF PROXIES.
Financial Institution agrees not to solicit or cause to be solicited
directly, or indirectly, at any time in the future, any proxies from the
shareholders of any or all of the Funds in opposition to proxies solicited by
management of the Company, unless a court of competent jurisdiction shall have
determined that the conduct of a majority of the Board of Directors of the
Company constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties. This Paragraph 16 will survive the term of this
Agreement.
17. CERTIFICATION OF CUSTOMERS' TAXPAYER IDENTIFICATION NUMBERS.
Financial Institution agrees to obtain any taxpayer identification number
certification from its customers required under Section 3406 of the Internal
Revenue Code, and any applicable Treasury regulations, and to provide Edgewood,
DFM, or their respective designee with timely written notice of any failure to
obtain such taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
18. NOTICES.
Except as otherwise specifically provided in this Agreement, all notices
required or permitted to be given pursuant to this Agreement shall be given in
writing and delivered by personal delivery or by postage prepaid, registered or
certified United States first class mail, return receipt requested, overnight
courier services, or by facsimile or similar electronic means of delivery (with
a confirming copy by mail as provided herein). Unless otherwise notified in
writing, all notices to Edgewood shall be given or sent to its offices located
at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. All notices
to DFM shall be given or sent to its offices located at 31 West 52nd Street,
14th Floor, New York, New York 10019 and all notices to Financial Institution
shall be given or sent to it at its address shown below.
19. TERMINATION AND AMENDMENT.
(a) This Agreement shall become effective in this form as of the date set forth
below or as of the first date thereafter upon which Financial Institution
executes any transaction, performs any service, or receives any payment
pursuant hereto. This Agreement supersedes any prior sales, distribution,
shareholder service, or administrative service agreements between the
parties with respect to the Funds.
(b) With respect to each Fund, this Agreement shall continue in effect for one
year from the date of its execution, and thereafter for successive periods
of one year if the form of this Agreement is approved with respect to each
such Class at least annually by the Directors of the Fund, including a
majority of the members of the Board of Directors of the Fund who are not
interested persons of the Fund and have no direct or indirect financial
interest in the operation of any Plan or in any related agreements to such
Plan ("Independent Directors ")
cast in person at a meeting called for that purpose.
(c) This Agreement, including Exhibit A hereto, may be amended by Edgewood
and/or DFM from time to time by the following procedure. Edgewood or DFM
will mail a copy of the amendment to Financial Institution's address, as
shown below. Subject to any requirements imposed by any Plan or Rule 12b-1
under the Investment Company Act of 1940, if Financial Institution does not
object to the amendment within thirty (30) days after its receipt, the
amendment will become part of the Agreement. Financial Institution's
objection must be in writing and be received by Edgewood or DFM within such
thirty days.
(d) Notwithstanding subparagraph 19(b) and in addition to subparagraph 1(a),
this Agreement may be terminated with respect to each Class of Shares for
which Financial Institution receives compensation under section 7 or Section
9 hereof as follows:
(i) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Directors of the Fund or by a vote of a
majority of the outstanding voting securities of such Class as defined
in the Investment Company Act of 1940 on not more than sixty (60) days'
written notice to the parties to this Agreement;
(ii) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940, upon the termination of the
"Distributor's Contract" between the Fund and Edgewood, upon termination
of the "Services Agreement" between the Fund and DFM, or upon the
termination of the Plan relating to such Class to which this Agreement
is related; and
(iii)by any party to the Agreement without cause by giving the other party
at least sixty (60) days' written notice of its intention to terminate.
(e) The termination of this Agreement with respect to any one Fund will not
cause the Agreement's termination with respect to any other Fund.
20. MISCELLANEOUS
Financial Institution acknowledges that this Agreement is a "related
agreement" with respect to the Plan within the meaning of Rule 12b-1 under the
1940 Act and agrees to comply with the terms and conditions applicable to this
Agreement under Rule 12b-1 and the Plan. Financial Institution agrees to furnish
information to Edgewood or DFM as they may require to comply with the Plans.
[Remainder of this page intentionally left blank.]
<PAGE>
21. GOVERNING LAW.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Pennsylvania.
EDGEWOOD SERVICES, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By: Date:
DEUTSCHE FUND MANAGEMENT, INC.
31 West 52nd Street, 14th Floor
New York, New York 10019
By: Date:
By: __________________________ Date:
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Financial Institution Name
(Please Print or Type)
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Address
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City State Zip Code
By:______________________________
Authorized Signature
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Title
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Print Name or Type Name
Dated:_____________________
EXHIBIT A
FEE SCHEDULE FOR MUTUAL FUND
SALES AND SERVICE AGREEMENT
WITH EDGEWOOD SERVICES, INC.
EFFECTIVE AS OF JULY 28, 1997
This Exhibit to the Mutual Fund Sales and Service Agreement among Edgewood
Services, Inc., Deutsche Fund Management, Inc. and the Financial Institution
executing the Agreement sets forth the Funds which are offered pursuant to the
Agreement and the rate of fees which Edgwood Services, Inc. or DFM will pay
pursuant to the Agreement. For purposes of this Exhibit, "Initial Sales Load"
shall be paid subject to the terms of Section 4 of the Agreement; "Advance
Commissions" shall be paid subject to the terms of Section 5 of the Agreement;
"Distribution Fees" shall be paid subject to Section 7 of the Agreement;
"Shareholder Service Fees" shall be paid subject to Section 8 of the Agreement;
and "Supplemental Payments" (if payable) shall be paid subject to Section 10 of
the Agreement. Advance Commission shall be paid as a percentage of the public
offering price of the Fund shares next determined after the purchase order is
accepted by Federated Securities Corp. Asset-Based Sales Loads, Shareholder
Service Fees, and Supplemental Payments shall be paid at an annual rate on the
average net asset value of shares held in each of the Funds attributable to the
specified class during the period in accounts for which the Financial
Institution provides services under the Agreement, so long as the average net
asset value of the shares in any such Fund during the period is at least
$100,000.
All fees stated herein are valid as of the date stated above. Fees are
subject to change pursuant to Sections 18 and 19 of the Agreement.
<PAGE>
DEUTSCHE FUNDS, INC.
CLASS A SHARES
INITIAL SALES LOAD: BOND FUNDS (AS DEFINED IN EXHIBIT B)
A portion of the initial sales load equal to the following percentage of
the public offering price of shares purchased will be paid to the Financial
Institution:
4.00% on purchases up to $50,000
3.50% on purchases of $50,000 but less than $100,000
2.75% on purchases of $100,000 but less than $250,000
2.00% on purchases of $250,000 but less than $500,000
1.75% on purchases of $500,000 but less than $1 million
1.00% on purchases of $1 million but less than $2 million
0.80% on purchases of $2 million but less than $5 million
0.50% on purchases of $5 million but less than $50 million
0.25% on purchases of $50 million but less than $100 million
0.15% on purchases of $100 million or more
<PAGE>
EQUITY FUNDS (AS DEFINED IN EXHIBIT B)
5.00% on purchases up to $50,000
3.75% on purchases of $50,000 but less than $100,000
2.75% on purchases of $100,000 but less than $250,000
2.00% on purchases of $250,000 but less than $500,000
1.75% on purchases of $500,000 but less than $1 million
1.00% on purchases of $1 million but less than $2 million
0.80% on purchases of $2 million but less than $5 million
0.50% on purchases of $5 million but less than $50 million
0.25% on purchases of $50 million but less than $100 million
0.15% on purchases of $100 million or greater
<PAGE>
DISTRIBUTION FEE: NONE
SHAREHOLDER SERVICE FEE: up to 0.25% of average net assets.
FUND CUSIP
(Portfolio name if series fund; see prospectus for entire fund name.)
Deutsche European Mid-Cap Fund 251545 10 9
Deutsche German Equity Fund 251545 30 7
Deutsche Japanese Equity Fund 251545 50 5
Deutsche Global Bond Fund 251545 70 3
Deutsche European Bond Fund 251545 88 5
Deutsche Top 50 World 251545 86 9
Deutsche Top 50 Europe 251545 84 4
Deutsche Top 50 Asia 251545 82 8
Deutsche Top 50 US 251545 79 4
Deutsche US Money Market Fund 251545 77 8
<PAGE>
CLASS B SHARES
INITIAL SALES LOAD: None
ADVANCE COMMISSION: 4.0% of the net asset value of
Class B Shares purchased by clients
on purchases less than $1,000,000. No advance
commission on purchases of Deutsche US
Money Market Fund shares.
DISTRIBUTION FEE: None
SHAREHOLDER SERVICE FEE: Up to 0.25% of average net assets
commencing in the thirteenth month
FUND CUSIP
(Portfolio name if series fund; see prospectus for entire fund name.)
Deutsche European Mid-Cap Fund 251545 20 8
Deutsche German Equity Fund 251545 40 6
Deutsche Japanese Equity Fund 251545 50 5
Deutsche Global Bond Fund 251545 70 3
Deutsche European Bond Fund 251545 87 7
Deutsche Top 50 World 251545 85 1
Deutsche Top 50 Europe 251545 83 6
Deutsche Top 50 Asia 251545 81 0
Deutsche Top 50 US 251545 78 6
Deutsche US Money Market Fund 251545 76 0
<PAGE>
EXHIBIT B
Bond Funds: Deutsche Global Bond Fund
Deutsche European Bond Fund
Equity Funds: Deutsche European Mid-Cap Fund
Deutsche German Equity Fund
Deutsche Japanese Equity Fund
Deutsche Top 50 World
Deutsche Top 50 Europe
Deutsche Top 50 Asia
Deutsche Top 50 US
Exhibit 9(a)(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
MASTER AGREEMENT
FOR
ADMINISTRATION SERVICES
AGREEMENT made as of July 28,1997 by and between the DEUTSCHE FUNDS,
INC. as may be amended from time to time, having its principal office and
place of business at Federated Investors Tower, Pittsburgh, PA 15222-3779
(the "Investment Company"), on behalf of the portfolios (individually
referred to herein as a "Fund" and collectively as "Funds") of the
Investment Company, and FEDERATED SERVICES COMPANY, a Pennsylvania
corporation, having its principal office and place of business at
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, on behalf
of itself and its subsidiaries (the "Company").
WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended
(the "1940 Act"), with authorized and issued shares of capital stock or
beneficial interest ("Shares");
WHEREAS, the Fund is a Spoke(R) in a Hub(R) and Spoke(R) investment
structure which requires that the Fund recognize and operate in accordance
with complex operational and regulatory requirements;
WHEREAS, the Investment Company desires that the Company assist the
Fund in addressing these novel, complex issues and hereby desires to
appoint the Company as its agent to perform all of the requisite services
for the administration of the Fund and to compensate the Company for such
services in addition to those out-of-pocket and third party expenses
incurred by the Company. Such services shall include: developmental
support , administrative, and transfer agency, (all herein defined) ;
provided however, that such services shall not include advisory,
shareholder, custody or distribution services; and the Company desires to
accept such appointment.
WHEREAS, from time to time the Investment Company may desire and may
instruct the Company to subcontract for the performance of certain of its
duties and responsibilities hereunder to another agent (the "Agent").
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
SECTION ONE: DEVELOPMENTAL SUPPORT SERVICES
ARTICLE 1. APPOINTMENT
The Investment Company hereby appoints the Company to provide, or
cause to be provided, to the Fund(s) those developmental support services
that are necessary to establish and operate the Fund within a Hub and
Spoke(R) investment structure. The Company accepts such appointment and
agrees to provide, or cause to be provided those services set forth in
Article 2 of this Agreement in return for the compensation set forth in
Article 12 of this Agreement.
ARTICLE 2. THE COMPANY'S DUTIES
Subject to the supervision and control of the Investment Company's
Board of Directors ("Board"), and in furtherance of the Investment
Company's desire to have the Company assist the Fund in adapting to the
complexities of the Hub and Spoke(R) investment structure, the Company
undertakes and agrees to provide, or cause to be provided, to the Fund(s)
developmental, organizational, administrative, and compliance and allied
services that are unique to the Hub and Spoke(R) investment structure,
such services to be provided within the scope of applicable Federal and
State regulations.
The foregoing, along with any additional services that the Company
shall from time to time agree to provide for the Investment Company under
this Section One shall hereinafter be referred to as "Developmental
Support Services."
SECTION TWO: ADMINISTRATIVE SERVICES.
ARTICLE 3. APPOINTMENT.
The Investment Company hereby appoints the Company as Administrator for
the period and on the terms and conditions set forth in this Agreement.
The Company accepts such appointment and agrees to furnish the services
set forth in Article 4 of this Agreement in return for the compensation
set forth in Article 12 of this Agreement.
ARTICLE 4. THE COMPANY'S DUTIES.
As Administrator, and subject to the supervision and control of the Board,
the Company will provide facilities, equipment, and personnel to carry out the
following administrative services for operation of the business and affairs of
the Investment Company and the Funds and/or their classes:
A. following the organization of the Investment Company, prepare, file,
and maintain the Investment Company's governing documents and any
amendments thereto, including the
"Declaration of Trust" "Articles of Incorporation"
Articles of Incorporation (which have already been prepared and
filed), the By-laws and minutes of meetings of the Board
"Trustees" "Directors" and
Shareholders;
B. following the Investment Company's effectiveness with the Securities
and Exchange Commission, prepare the registration statements for the
Investment Company and the Investment Company's Shares and all
amendments thereto, submit the registration statements to the Hub Fund
for approval, and file the registration statements with the Securities
and Exchange Commission and the appropriate state securities
authorities;
C. prepare and file reports to regulatory authorities and shareholders,
prospectuses, proxy statements, and such other documents all as may be
necessary to enable the Investment Company to make a continuous
offering of its Shares;
D. plan and prepare for meetings of the Investment Company's Board,
including maintaining the Board's agenda, preparing materials for the
Board's review and consideration and disstributing such materials to
the Board in advance of Board meetings;
E. attend in person, and record the minutes of meetings of, the
Investment Company's Board;
F. plan and prepare for meetings of the Investment Company's shareholders
and record the minutes of such meetings;
G. maintain the Investment Company's calendar of reporting and filing
obligations;
H. prepare expense projections for the Funds and provide such projections
to the Fund's portfolio accountant; monitor expenses incurred by the
Funds; forward invoices to the Investment Company's Treasurer for
payment authorization;
I. monitor the declaration and payment of dividends and other
distributions;
J. monitor and supervise the collection of tax reclaims;
K. coordinate the layout and printing of publicly disseminated
prospectuses and reports;
L. perform internal audit examinations;
M. obtain EIN and CUSIP number for each Fund;
N. consult with the Fund and its Board on matters concerning the Fund and
its affairs; and
O. coordinate the activities of all service providers to the Investment
Company. By way of example, the Company will, in conjunction with item
(G) above, communicate to the other service providers to the Investment
Company lists of information and materials needed for filing
obligations, as well as deadlines for the receipt of such materials. The
Company does not take responsibility for the failure of other service
providers to provide such materials to the Investment Company in a
timely fashion or for the performance of functions for which other
service providers are responsible.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Fund under this Section Two, shall hereafter
be referred to as "Administrative Services."
ARTICLE 5. RECORDS.
The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the Investment Company Act of
1940 and the rules thereunder, as the same may be amended from time to time,
pertaining to the Administrative Services performed by it and not otherwise
created and maintained by another party pursuant to contract with the Investment
Company. Where applicable, such records shall be maintained by the Company for
the periods and in the places required by Rule 31a-2 under the 1940 Act. The
books and records pertaining to the Investment Company which are in the
possession of the Company shall be the property of the Investment Company. The
Investment Company, or the Investment Company's authorized representatives,
shall have access to such books and records at all times during the Company `s
normal business hours. Upon the reasonable request of the Investment Company,
copies of any such books and records shall be provided promptly by the Company
to the Investment Company or the Investment Company's authorized
representatives.
ARTICLE 6. DUTIES OF THE FUND.
The Fund assumes full responsibility for the preparation, contents and
distribution of its own offering document and for complying with all applicable
requirements of the 1940 Act, the Internal Revenue Code, and any other laws,
rules and regulations of government authorities having jurisdiction.
ARTICLE 7. RESPONSIBILITY OF ADMINISTRATOR.
A. The Company shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Investment Company in
connection with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
The Company shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant
to such advice. Any person, even though also an officer, director,
trustee, partner, employee or agent of the Company, who may be or
become an officer,
"Trustee" "Director" director, trustee, partner, employee or agent of
the Investment Company, shall be deemed, when rendering services to
the Investment Company or acting on any business of the Investment
Company (other than services or business in connection with the duties
of the Company hereunder) to be rendering such services to or acting
solely for the Investment Company and not as an officer, director,
trustee, partner, employee or agent or one under the control or
direction of the Company even though paid by the Company.
B. The Company shall be kept indemnified by the Investment Company and be
without liability for any action taken or thing done by it in
performing the Administrative Services in accordance with the above
standards. In order that the indemnification provisions contained in
this Article 7 shall apply, however, it is understood that if in any
case the Investment Company may be asked to indemnify or save the
Company harmless, the Investment Company shall be fully and promptly
advised of all pertinent facts concerning the situation in question,
and it is further understood that the Company will use all reasonable
care to identify and notify the Investment Company promptly concerning
any situation which presents or appears likely to present the
probability of such a claim for indemnification against the Investment
Company. The Investment Company shall have the option to defend the
Company against any claim which may be the subject of this
indemnification. In the event that the Investment Company so elects,
it will so notify the Company and thereupon the Investment Company
shall take over complete defense of the claim, and the Company shall
in such situation initiate no further legal or other expenses for
which it shall seek indemnification under this Article. The Company
shall in no case confess any claim or make any compromise in any case
in which the Investment Company will be asked to indemnify the Company
except with the Investment Company's written consent.
SECTION THREE: TRANSFER AGENCY SERVICES.
ARTICLE 8. TERMS OF APPOINTMENT.
The Investment Company hereby appoints the Company to act as transfer
agent and dividend disbursing agent for each Fund's Shares, and agent in
connection with any accumulation, open-account or similar plans provided
to the shareholders of any Fund ("Shareholder(s)"), including without
limitation any periodic investment plan or periodic withdrawal program.
ARTICLE 9. DUTIES OF THE COMPANY.
The Company shall perform the following services in accordance with
Proper Instructions (as defined in Article 13) as may be provided from
time to time by the Investment Company as to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate documentation
therefor to the custodian of the relevant Fund (the "Custodian").
The Company shall notify the Fund, the Administrator for the Fund
and the Custodian on a daily basis of the total amount of orders
and payments so delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent,
shall countersign and mail by first class mail, a certificate to
the Shareholder at its address as set forth on the transfer books
of the Funds, and/or Classes, subject to any Proper Instructions
regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any reason,
the Company shall debit the Share account of the Shareholder by
the number of Shares that had been credited to its account upon
receipt of the check or other order, promptly mail a debit advice
to the Shareholder, and notify the Fund and/or Class of its
action. In the event that the amount paid for such Shares exceeds
proceeds of the redemption of such Shares plus the amount of any
dividends paid with respect to such Shares, the Fund and/the Class
or its distributor will reimburse the Company on the amount of
such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions
of its governing document and the then-current Prospectus of the
Fund. The Company shall prepare and mail or credit income,
capital gain, or any other payments to Shareholders. As the
Dividend Disbursing Agent, the Company shall, on or before the
payment date of any such distribution, notify the Custodian and
the Fund's Administrator of the estimated amount required to pay
any portion of said distribution which is payable in cash and
request the Custodian to make available sufficient funds for the
cash amount to be paid out. The Company shall reconcile the
amounts so requested and the amounts actually received with the
Custodian and the Fund's Administrator on a daily basis. If a
Shareholder is entitled to receive additional Shares by virtue of
any such distribution or dividend, appropriate credits shall be
made to the Shareholder's account, for certificated Funds and/or
Classes, delivered where requested; and
(2) The Company shall maintain records of account for each Fund and
Class and advise the Investment Company, each Fund and Class and
its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set forth
in Proper Instructions, deliver the appropriate instructions
therefor to the Custodian. The Company shall notify the Fund and
the Fund's Administrator on a daily basis of the total amount of
redemption requests processed and monies paid to the Company by
the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from
the Custodian with respect to any redemption, the Company shall
pay or cause to be paid the redemption proceeds in the manner
instructed by the redeeming Shareholders, pursuant to procedures
described in the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor, and
shall effect such redemption at the price applicable to the date
and time of receipt of documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and uncashed
checks for state escheat requirements on an annual basis
and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a regular
basis or upon reasonable request with the total number of Shares
which are authorized and issued and outstanding, but shall have
no obligation when recording the issuance of Shares, except as
otherwise set forth herein, to monitor the issuance of such
Shares or to take cognizance of any laws relating to the issue or
sale of such Shares, which functions shall be the sole
responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Investment Company or the Fund to include a record for each
Shareholder's account of the following:
(a) name, address and tax identification number (and whether such
number has been certified);
(b) number of Shares held;
(c) historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) any stop or restraining order placed against the account;
(e) information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current
maintenance of the account;
(g) certificate numbers and denominations for any Shareholder
holding certificates; and
(h) any information required in order for the Company to perform
the calculations contemplated or required by this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such record
retention shall be at the expense of the Company, and such
records may be inspected by the Investment Company the Fund at
reasonable times. The Company may, at its option at any time, and
shall forthwith upon the Fund's demand, turn over to the Fund and
cease to retain in the Company's files, records and documents
created and maintained by the Company pursuant to this Agreement,
which are no longer needed by the Company in performance of its
services or for its protection. If not so turned over to the
Investment Company or the Fund, such records and documents will
be retained by the Company for six years from the year of
creation, during the first two of which such documents will be in
readily accessible form. At the end of the six year period, such
records and documents will either be turned over to the
Investment Company or the Fund or destroyed in accordance with
Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Investment Company or the Fund
periodically the following information:
(a) a copy of the transaction register;
(b) dividend and reinvestment blotters;
(c) the total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the Fund
to the Company;
(d) Shareholder lists and statistical information;
(e) payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees, or
other transaction- or sales-related payments; and
(f) such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed
and mailed and shall withhold such sums as are required to be
withheld under applicable federal and state income tax laws, rules
and regulations.
(3) In addition to and not in lieu of the services set forth above, the
Company shall:
(a) perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in connection
with accumulation, open-account or similar plans (including
without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to: maintaining
all Shareholder accounts, mailing Shareholder reports and
Prospectuses to current Shareholders, withholding taxes on
accounts subject to back-up or other withholding (including
non-resident alien accounts), preparing and filing reports on
U.S. Treasury Department Form 1099 and other appropriate forms
required with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for
all purchases and redemptions of Shares and other conformable
transactions in Shareholder accounts, preparing and mailing
activity statements for Shareholders, and providing Shareholder
account information; and
(b) provide a system which will enable the Investment Company to
monitor the total number of Shares of each Fund and/or Class
sold in each state ("blue sky reporting"). The Investment
Company shall by Proper Instructions (i) identify to the
Company those transactions and assets to be treated as
exempt from the blue sky reporting for each state and (ii)
verify the classification of transactions for each state on
the system prior to activation and thereafter monitor the
daily activity for each state. The responsibility of the
Company for each Fund's and/or Class's state blue sky
registration status is limited solely to the recording of
the initial classification of transactions or accounts with
regard to blue sky compliance and the reporting of such
transactions and accounts to the Investment Company as
provided above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders relating
to their Share accounts and such other correspondence as may from
time to time be addressed to the Company.
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in connection
with Shareholder Meetings of each Fund; receive, examine and
tabulate returned proxies, and certify the vote of the
Shareholders.
(3) The Company shall establish and maintain facilities and procedures
for safekeeping of stock certificates, check forms and facsimile
signature imprinting devices, if any; and for the preparation or
use, and for keeping account of, such certificates, forms and
devices.
(4) Mail information, such as prospectuses or reports, to prospective
shareholders or third party financial intermediaries.
All of the foregoing as described in this Article 9, along with any
additional services that the Company shall agree in writing to perform for the
Investment Company under this Section Three, shall hereafter be referred to as
"Transfer Agency Services."
ARTICLE 10. DUTIES OF THE INVESTMENT COMPANY.
A. Compliance
The Investment Company or Fund assume full responsibility for the
preparation, contents and distribution of its own and/or its Classes'
Prospectuses and for complying with all applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act and
any laws, rules and regulations of government authorities having
jurisdiction.
B. Share Certificates
If the Investment Company has authorized the issuance of share
certificates, the Investment Company shall supply the Company with a
sufficient supply of blank Share certificates and from time to time
shall renew such supply upon request of the Company. Such blank Share
certificates shall be properly signed, manually or by facsimile, if
authorized by the Investment Company and shall bear the seal of the
Investment Company or facsimile thereof; and notwithstanding the death,
resignation or removal of any officer of the Investment Company
authorized to sign certificates, the Company may continue to countersign
certificates which bear the manual or facsimile signature of such
officer until otherwise directed by the Investment Company
C. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
ARTICLE 11. REPRESENTATIONS.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter
into this arrangement and to provide the services contemplated in Section
Three of this Agreement.
SECTION FOUR: GENERAL PROVISIONS.
ARTICLE 12. COMPENSATION AND EXPENSES.
A. The Funds will compensate the Company for the Developmental Support
Services, Administrative Services, and Transfer Agency Services in
accordance with the fees agreed upon between the parties hereto on the
applicable schedule. Such fees do not include out-of-pocket and other
third party disbursements of the Company for which the Funds shall
reimburse the Company separately. Examples of out-of-pocket expenses
are included as exhibits to this Agreement. The Company shall be
responsible for expenses incurred in providing office space,
equipment, and personnel as may be necessary or convenient to provide
the Administrative Services to the Fund, including the compensation of
the Company employees who serve as officers of the Investment Company.
The Investment Company shall be responsible for all other reasonable
and documented expenses incurred by the Company on behalf of the
Investment Company, including without limitation postage and courier
expenses, printing expenses, travel expenses, registration fees,
filing fees, fees of outside counsel and independent auditors or other
professional services, organizational expenses, insurance premiums,
fees payable to persons who are not the Company employees, trade
association dues, and other expenses properly payable by the Funds
and/or Classes.
B. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be
prorated according to the proportion that such period bears to the full
month period. Upon any termination of this Agreement before the end of
any month, the fee for such period shall be prorated according to the
proportion which such period bears to the full month period.
C. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate with itself such person or persons as the
Company may believe to be particularly suited to assist it in performing
any of the services under this Agreement. Such person or persons may be
affiliates of the Company, third-party service providers, or they may be
officers and employees who are employed by both the Company and the
Investment Company; provided, however, that the Company shall be as
fully responsible to each Fund for the acts and omissions of any such
subcontractor as it is for its own acts and omissions. Except as herein
provided, the compensation of such person or persons shall be paid by
the Company and no obligation shall be incurred on behalf of the
Investment Company, the Funds, or the Classes in such respect.
ARTICLE 13. PROPER INSTRUCTIONS.
As used throughout this Agreement, a "Proper Instruction" means a
writing signed or initialed by one or more person or persons as the Board
shall have from time to time authorized. Each such writing shall set forth
the specific transaction or type of transaction involved. Oral
instructions will be deemed to be Proper Instructions if (a) the Company
reasonably believes them to have been given by a person previously
authorized in Proper Instructions to give such instructions with respect
to the transaction involved, and (b) the Investment Company, or the Fund,
and the Company promptly cause such oral instructions to be confirmed in
writing. Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the
Investment Company, or the Fund, and the Company are satisfied that such
procedures afford adequate safeguards for the Fund's assets. Proper
Instructions may only be amended in writing.
ARTICLE 14. ASSIGNMENT.
Except as provided below, neither this Agreement nor any of the rights
or obligations under this Agreement may be assigned by either party
without the written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. With regard to Transfer Agency Services, the Company may without further
consent on the part of the Investment Company subcontract for the
performance of Transfer Agency Services with its subsidiary, Federated
Shareholder Service Company, a Delaware business trust, which is duly
registered as a transfer agent pursuant to Section 17A(c)(1) of the
Securities Exchange Act of 1934, as amended, or any succeeding statute
("Section 17A(c)(1)").
The Company shall be as fully responsible to the Investment Company for
the acts and omissions of any subcontractor as it is for its own acts
and omissions.
C. With regard to Administrative Services the Company may without further
consent on the part of the Investment Company subcontract for the
performance of such services with Federated Administrative Services, a
wholly-owned subsidiary of the Company. The Company shall be as fully
responsible to the Investment Company for the acts and omissions of any
subcontractor as it is for its own acts and omissions.
D. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement with an
Agent selected by the Investment Company, other than as described in B.
and C. above; provided, however, that the Company shall in no way be
responsible to the Investment Company for the acts and omissions of the
Agent.
ARTICLE 15. DOCUMENTS.
A. In connection with the appointment of the Company under this Agreement,
the Investment Company shall file with the Company the following
documents:
(1) a copy of the Charter and By-Laws of the Investment Company and
all amendments thereto;
(2) a copy of the resolution of its Board authorizing this Agreement;
(3) specimens of all forms of outstanding Share certificates of the
Investment Company or the Funds in the forms approved by the
Board of the Investment Company with a certificate of the
Secretary of the Investment Company as to such approval;
(4) all account application forms and other documents relating to
Shareholders' accounts; and
(5) a copy of the current Prospectus for each Fund.
B. The Investment Company will also furnish from time to time the following
documents:
(1) each resolution of the Board authorizing the original issuance of
each Fund's, and/or Class's Shares;
(2) each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to the
sale of Shares of any Fund, and/or Class;
(3) a certified copy of each amendment to the governing document and
the By-Laws of the Investment Company;
(4) certified copies of each vote of the Board authorizing persons to
give Proper Instructions;
(5) specimens of all new Share certificates representing Shares of
any Fund, accompanied by Board resolutions approving such forms;
(6) such other certificates, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the
proper performance of its duties; and
(7) revisions to the Prospectus of each Fund.
ARTICLE 16. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company
The Company represents and warrants to the Investment Company that:
(1) it is a corporation duly organized and existing and in good
standing under the laws of the Commonwealth of Pennsylvania;
(2) It is duly qualified to carry on its business in each
jurisdiction where the nature of its business requires such
qualification, and in the Commonwealth of Pennsylvania;
(3) it is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement;
(4) all requisite corporate proceedings, including obtaining
necessary licenses, have been taken to authorize it to enter into
and perform its obligations under this Agreement;
(5) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement; and
(6) it is in compliance with federal securities law requirements and
in good standing as a transfer agent.
B. Representations and Warranties of the Investment Company
The Investment Company represents and warrants to the Company that:
(1) it is an investment company duly organized and existing and in
good standing under the laws of its state of organization;
(2) it is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform its obligations under this
Agreement;
(3) all corporate proceedings required by said Charter and By-Laws
have been taken to authorize it to enter into and perform its
obligations under this Agreement;
(4) the Investment Company is an open-end investment company
registered under the 1940 Act; and
(5) a registration statement under the 1933 Act will be effective,
and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of each Fund
being offered for sale.
ARTICLE 17. STANDARD OF CARE AND INDEMNIFICATION.
A. Standard of Care
With regard to Sections One and Three, the Company shall be held to a
standard of reasonable care in carrying out the provisions of this
Contract. The Company shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Investment Company) on all
matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice, provided that such action is not in
violation of applicable federal or state laws or regulations, and is in
good faith and without negligence.
B. Indemnification by Investment Company
The Company shall not be responsible for and the Investment Company or
Fund shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents employees and affiliates,
harmless against any and all losses, damages, costs, counsel fees, and
liabilities (collectively, "Losses") arising out of or attributable to:
(1) the acts or omissions of any Custodian, Adviser, Sub-adviser or
other party contracted by or approved by the Investment Company
or Fund;
(2) the good faith reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper
form which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase, redemption
or transfer of Shares and Shareholder account information;
(b) are received by the Company from independent pricing services
or sources for use in valuing the assets of the Funds;
(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties
contracted by or approved by the Investment Company of Fund
for use in the performance of services under this Agreement;
or
(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Investment Company;
(3) the reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Investment
Company or the Fund; or
(4) the offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws
or regulations of any state that such Shares be registered in such
state or in violation of any stop order or other determination or
ruling by any federal agency or any state with respect to the
offer or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by this
Article 17.B from liability for any losses resulting from the Company's
willful misfeasance, bad faith, negligence or reckless disregard of its
duties or failure to meet the standard of care set forth in 17.A above.
C. Reliance
At any time the Company may apply to any officer of the Investment
Company or Fund for instructions, and may consult with legal counsel
with respect to any matter arising in connection with the services to be
performed by the Company under this Agreement, and the Company and its
agents or subcontractors shall not be liable and shall be indemnified by
the Investment Company or the appropriate Fund for any action reasonably
taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel provided such action is not in violation of
applicable federal or state laws or regulations. The Company, its agents
and subcontractors shall be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Investment Company
or the Fund, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this Article
19 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion, and shall keep
the other party advised with respect to all developments concerning such
claim. The party who may be required to indemnify shall have the right
to assume the defense of such claim. The party seeking indemnification
shall in no case confess any claim or make any compromise in any case in
which the other party may be required to indemnify it except with the
other party's prior written consent.
ARTICLE 18. TERM AND TERMINATION OF AGREEMENT.
The initial term of this Agreement shall commence on the date hereof,
and extend for a period of three years following the date of the
commencement of the public offering of the Fund's shares. Following the
initial term of this Agreement, the Agreement will be terminable on not
less than 90 days' notice by either the Company or the Investment Company,
subject to the payment of all deferred expenses and unamortized expenses.
In the event, however, of willful misfeasance, bad faith, negligence or
reckless disregard of its duties by the Company, the Investment Company
has the right to terminate the Agreement upon 30 days written notice, if
Company has not cured such willful misfeasance, bad faith, negligence or
reckless disregard of its duties within that same 30 days. The termination
date for all original or after-added Investment companies which are, or
become, a party to this Agreement shall be coterminous. Investment
Companies that merge or dissolve during the Term, shall cease to be a
party on the effective date of such merger or dissolution.
Should the Investment Company exercise its right to terminate, all
reasonable out-of-pocket expenses associated with the movement of records
and materials will be borne by the Investment Company or the appropriate
Fund. Additionally, the Company reserves the right to charge for any other
reasonable expenses associated with such termination unless such
termination is caused by the Company's willful misfeasance, bad faith,
negligence or reckless disregard of its duties. The provisions of Articles
7 and 17 shall survive the termination of this Agreement.
ARTICLE 19. AMENDMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by a written agreement executed by both
parties.
<PAGE>
ARTICLE 20. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions
interpretive of or in addition to the provisions of this Agreement as may
in their joint opinion be consistent with the general tenor of this
Agreement. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, PROVIDED that
no such interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the
organizational documents. No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of
this Agreement.
ARTICLE 21. GOVERNING LAW.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York.
ARTICLE 22. NOTICES.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Investment Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, with a
copy to Deutsche Fund Management, Inc. at 31 West 52nd Street, New York,
New York, 10019, Attn: President or to the Company at Federated Investors
Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such other address as
the Investment Company or the Company may hereafter specify, shall be
deemed to have been properly delivered or given hereunder to the
respective address.
ARTICLE 23. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
ARTICLE 24. MERGER OF AGREEMENT.
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written.
ARTICLE 25. SUCCESSOR AGENT.
If a successor agent for the Investment Company shall be appointed by
the Investment Company, the Company shall upon termination of this
Agreement deliver to such successor agent at the office of the Company all
properties of the Investment Company held by it hereunder. If no such
successor agent shall be appointed, the Company shall at its office upon
receipt of Proper Instructions deliver such properties in accordance with
such instructions.
With regard to Section Two and Three, in the event that no written
order designating a successor agent or Proper Instructions shall have been
delivered to the Company on or before the date when such termination shall
become effective, then the Company shall have the right to deliver to a
bank or trust company, which is a "bank" as defined in the 1940 Act, of
its own selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than
$2,000,000, all properties held by the Company under this Agreement.
Thereafter, such bank or trust company shall be the successor of the
Company under this Agreement.
ARTICLE 26. FORCE MAJEURE.
The Company shall have no liability for cessation of services hereunder
or any damages resulting therefrom to the Fund as a result of work
stoppage, natural disaster, governmental action, loss or malfunction of
utilities or other impossibility of performance.
ARTICLE 27. ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party. Such consent may not be unreasonably
withheld. However, either party may assign all of or a substantial portion
of its business to a successor, or to a party controlling, controlled by,
or under common control with such party. Nothing in this Article 27 shall
prevent the Company from delegating its responsibilities to another entity
to the extent provided herein.
ARTICLE 28. SEVERABILITY.
In the event any provision of this Agreement or any interpretive additional
provisions described in Article 20 are held illegal, void or unenforceable, the
balance shall remain in effect.
ARTICLE 29. PROPERTY OF THE INVESTMENT COMPANY AND CONFIDENTIALITY.
The Investment Company's records, including all those maintained hereunder
by the Company, whether in magnetic media, hard copy, film form or other format,
shall be the Investment Company's property for all purposes, and the Company
shall treat confidentially and as proprietary information of the Investment
Company all such records and other information relative to the Investment
Company and its shareholders which is not independently available to the Company
or in the public domain and, in the case of a shareholder list, shall have not
interest therein and shall use such records only in connection with the
performance of its duties hereunder and for no other purpose. In particular, the
Company agrees:
(a) that all information and data so acquired by it or its employees,
agents or contractors under this Agreement, or in contemplation thereof, shall
be and shall remain the Investment Company's exclusive property;
(b) to inform its employees, agents or contractors engaged in handling
such information and data of the confidential nature of such information and
data;
(c) to limit access to such information and data to authorized employees,
agents or contractors of the Company and the Investment Company who have a need
to know and use such information and data in connection with this Agreement and
the services to be supplied herein;
(d) to keep, and have their employees, agents and contractors keep, any
and all such information and data confidential;
(e) not to copy or publish or disclose such information and data to others
or authorize their employees, agents, contractors or anyone else, to copy or
publish or disclose such information and data to others without the other
party's written approval except if required by a State or Federal court or
agency and in such an event prompt written notice of such disclose requirement
shall be provided to the other party if permitted by law; and
(f) that upon termination of this Agreement, all records and other
confidential information of the Investment Company in the possession of the
Company shall be returned to the Investment Company or its designated successor
transfer agent, administrator, or distributor, as provided in Article 27.
The confidentiality provisions noted above will sruvive termination of
this Agreement for a period of 5 years.
ARTICLE 30. RELIEF.
The Company recognizes that the property and proprietary information of the
Investment Company is unique, and that the Investment Company cannot be fully
compensated by money damages and would be irreparably harmed by the disclosure
of its confidential information and data in violation of the provisions of
Article 29. The Company therefore agrees that the Investment Company may seek
immediate relief at equity for any fialure to company with Article 29 of this
Agreement, in addition to any othere remedies the Investment Company may have in
law or in equity.
ARTICLE 31. SERVICE LEVEL STANDARDS.
Subject to the non-occurrence of an event of force majeure and the performance
of the Investment Company's obligations described in this Agreement, the Company
agrees that the services will be provided in accordance with the service level
standards specified in Schedule A. The Company's fees will be adjusted based
upon performance-based reductions as described in Schedule A, aggregated up to a
maximum of 10% of all fees billed for the period indicated. The Company shall
provide in reasonable detail to the Investment Company's fund accountant and to
Deutsche Fund Management, Inc., the calculation of the performance-based fee
reductions and all amounts reduced thereunder. It will be the Company's sole
responsibility to compile the statistical information necessary to monitor the
performance standards enumerated in Schedule A.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and
through their duly authorized officers, as of the day and year first above
written.
DEUTSCHE FUNDS, INC.
By:/S/ BRIAN LEE
President
FEDERATED SERVICES COMPANY
By:/S/ THOMAS J. WARD
Senior Vice President
<PAGE>
ADMINISTRATIVE OR OPERATIONAL AGENCY SERVICES
OUT-OF-POCKET EXPENSES SCHEDULE
Cost of preparing, printing and mailing stock certificates, prospectuses,
sales literature, proxies, reports and notices. Interest on borrowed money
Taxes and fees payable to Federal, state and other governmental agencies
Fees of Trustees of the Funds Outside auditing and legal expenses Travel
expenses incurred by employees of Federated Services Company and its
affiliates in connection with such employees' attendance at
Fund Board meetings or in performance of Internal Audit Department functions
Insurance premiums Trade association dues Other expenses which may be
properly payable by a Fund, as applicable
<PAGE>
TRANSFER AGENCY SERVICES
FEE SCHEDULE
BASE FEE* Annual fee per fund, class or other subdivision. $18,000
ACCOUNT FEE* Annual account charge( includes system access
and funds control and reconcilement)
Daily dividend fund $16.00
Non-daily dividend fund $10.00
Contingent deferred sales charge( monthly and quarterly
funds only) $ 5.00
FULL SERVICE* Annual fee per fund, class or other subdivision. $2,000 This fee
includes the first 400 accounts. Additional accounts are $5.00 per account.
(Full service includes servicing broker/dealers, financial planners, registered
investment advisors, third party intermediaries).
*All fees are annualized and will be prorated on a monthly basis for billing
purposes. Out of pocket expenses are not covered by these fees.
US SPOKES
TRANSFER AGENCY SERVICES
OUT-OF-POCKET EXPENSES SCHEDULE
OUT-OF-POCKET EXPENSES INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING:
POSTAGE (INCLUDING OVERNIGHT COURIER SERVICE)
STATEMENT STOCK
ENVELOPES
TELEPHONES
TELECOMMUNICATION CHARGES (INCLUDING FAX AND DEDICATED LINE CHARGES)
VRU APPLICATION
CLOSED ACCOUNT CHARGES
12B-1 PROCESSING FEES
THIRD PARTY EXPENSES (I.E., NSCC FEES) FIDUCIARY SUBACCOUNTING FEE TRAVEL
(SUBJECT TO PRIOR APPROVAL BY THE FUND) DUPLICATING FORMS SUPPLIES
MICROFICHE COMPUTER ACCESS CHARGES CUSTOMIZED PROGRAMMING AND REPORTING
DISASTER RECOVERY OTHER AS INCURRED
<PAGE>
SERVICES AS AGENT FOR
RECORD SHAREHOLDERS
BASE FEE* Annual fee per fund, class or other subdivision. $18,000
ACCOUNT FEE* Annual account charge( includes system access
and funds control and reconcilement)
Daily dividend fund $16.00
Non-daily dividend fund $10.00
Contingent deferred sales charge( monthly and quarterly
funds only) $ 5.00
FULL SERVICE* Annual fee per fund, class or other subdivision. $2,000 This fee
includes the first 400 accounts. Additional accounts are $5.00 per account.
(Full service includes servicing broker/dealers, financial planners, registered
investment advisors, third party intermediaries).
*All fees are annualized and will be prorated on a monthly basis for billing
purposes. Out of pocket expenses are not covered by these fees.
OFFSHORE SPOKES
SERVICES AS AGENT FOR
RECORD SHAREHOLDERS
OUT-OF-POCKET EXPENSES SCHEDULE
OUT-OF-POCKET EXPENSES INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING:
POSTAGE (INCLUDING OVERNIGHT COURIER SERVICE)
STATEMENT STOCK
ENVELOPES
TELEPHONES
TELECOMMUNICATION CHARGES (INCLUDING FAX AND DEDICATED LINE CHARGES)
VRU APPLICATION
CLOSED ACCOUNT CHARGES
12B-1 PROCESSING FEES
THIRD PARTY EXPENSES (I.E., NSCC FEES) FIDUCIARY SUBACCOUNTING FEE TRAVEL
(SUBJECT TO PRIOR APPROVAL BY THE FUND) DUPLICATING FORMS SUPPLIES
MICROFICHE COMPUTER ACCESS CHARGES CUSTOMIZED PROGRAMMING AND REPORTING
DISASTER RECOVERY OTHER AS INCURRED
OFFSHORE SPOKES
<PAGE>
ADMINISTRATIVE OR OPERATIONAL AGENCY SERVICES
FEE SCHEDULE
HUB PORTFOLIOS 3.5 basis points per Hub
(minimum fee of $60,000 per Hub)
DOMESTIC SPOKES
First $200 million 6.5 basis points per Spoke
(minimum fee of $75,000 per Spoke)
Assets over $200 million 5.25 basis points per Spoke
(minimum fee of $75,000 per Spoke)
OFFSHORE SPOKES 2.5 basis points per Spoke
(minimum fee of $35,000 per Spoke)
The minimum fee per Hub and Spoke cluster (Hub with two Spokes, two classes of
shares on each domestic Spoke) for the first year of the contract will be
$75,000. The minimum fee per Hub and Spoke cluster in the second year of the
contract will be $125,000. The minimum fee is payable by the Hub with respect to
each Hub and Spoke cluster.
<PAGE>
SCHEDULE A
SERVICE LEVEL STANDARDS
The percentages set forth herein relate to all Investment Companies for
which the Company serves or in the future may serve as transfer agent,
administrator, cash management procurement agent and/or distributor, and which
are sponsored, advised, sub-advised or administered by Deutsche Fund Management,
Inc., or any of its affiliates, and do not relate individually to any one
specific Investment Company, except for service level standard numbers 2 and 4.
All fee credits are to be aggregated where there are instances of not meeting
objectives in respect of two or more different service level standards. A
waiver, whether partial, total, or conditional, of any fee credits, or right to
terminate this Agreement in a particular instance, does not constitute a waiver
in any other instance.
A monthly document evidencing the Company's performance with respect to
the service levels set forth below will be delivered to the Investment Company
by the Company, with a copy to Deutsche Fund Management, Inc., by the fifteenth
business day of the following month, or as soon thereafter as is reasonably
practicable. Such document shall be signed by a senior officer of the Company.
For purposes of this Article, the term "business day" shall mean each day
that the Investment Company is open for business as described in its prospectus.
For calculation purposes, a week is considered to be the period beginning on
Monday at 12:00 a.m., Eastern time, and concluding on the following Sunday at
11:59:59 p.m., Eastern time. When a month ends during the week, that entire
week's performance will be applied to the previous month.
<PAGE>
SERVICE LEVEL STANDARD 1: MANUAL DATA ENTRY(BY THE COMPANY)
SERVICE DESCRIPTION
In some situations the Company will provide a manual data entry service to the
Investment Company for establishing new investor accounts, or for making file
corrections to existing account records, providing that information is presented
in a clear, standard English format. The Investment Company places great
importance on the accuracy of name, street address, city, state, zip code, and
taxpayer identification number (the "Critical Data"), and all other information
that the Company data enters to its shareholder accounting system. A monthly
report will be prepared by the Company indicating the total number of manual
data entry errors in comparison to the total number of manual data entries.
OBJECTIVE
The Company's objective is to establish new accounts with a Data Accuracy Rate
(as defined below) of 100%, 98% of the time. The standard would apply if the
manual data entry processing exceeded on average 50 items a day.
METHOD OF CALCULATION
The Company will calculate the Data Accuracy Rate for each calendar month by
subtracting from 100% the result of dividing (1) the total account record error
corrections with respect to the Critical Data received during the current month
for data entry errors made during the preceding 90 calendar days, by (b) the
total new accounts established by manual data entry during the preceding 90
calendar days (not including new accounts input in the current calendar month).
The Data Accuracy Rate will be compared to the schedule below to determine the
total percentage credit to total Transfer Agency fees(excluding out of pocket
expenses) billed to all Investment Companies for the month. This credit
information would also be passed to the Investment Company's Fund Accountant for
allocation against fees to be paid hereunder.
FEE CREDITS MANUAL DATA ENTRY ACCURACY RATE
Less Than 98% 97% 96% 95% 94%
Credit to Transfer
Agency Fees 1.0% 2.0% 3.0% 4.0% 5.0%
(excluding out of pocket expenses)
<PAGE>
SERVICE LEVEL STANDARD 2: ACCURACY AND TIMELINESS OF STATEMENTS
SERVICE DESCRIPTION
The Company will produce and mail periodic statements to all shareholders of the
Investment Company who are legally required to receive statements. For offshore
funds, "mailing" or "mailed" is defined as packaging and shipping the statements
in bulk to the fund's principal office located offshore or to another offshore
location designated by the fund. The Company will provide the Investment Company
with a mailing report from its mailing operation which will indicate the date on
which all shareholder statements were mailed. Year-end mailings are excluded
from this standard.
OBJECTIVE
The Company's objective is to manage this service so that 99% of all statements
are accurate and are mailed no later than five (5) business days (excluding
weekend days) after statement rendition date.
METHOD OF CALCULATION
Failure to meet this objective will result in a credit to the total cost of the
mailings, excluding postage, billed to the Investment Company affected by the
delay for the period. Using the mailing report, the Company will add the number
of days past the objective. That number would be compared to the schedule below
to determine the total percentage credit to the cost of the mailings, excluding
postage, billed to the Investment Company for that period.
FEE CREDITS
BUSINESS DAYS PAST STATEMENT RENDITION DATE
6 7 8 9
but less but less but less but less 10
THAN 7 THAN 8 THAN 9 THAN 10 OR MORE
------ ------ ------ ------- -----
Credit to the cost
of the mailing, 1% 2% 3% 4% 5%
excluding postage
<PAGE>
SERVICE LEVEL STANDARD 3: ACCURACY AND TIMELINESS OF DAILY ADVICES
SERVICE DESCRIPTION
The Company will produce and mail, deliver or distribute an advice to Investment
Company shareholders ,who are legally required to receive advices, whenever a
financial transaction is posted to the shareholder's account, except where
suppressed pursuant to instructions received from the Investment Company. For
offshore funds, "mailing" or "mailed" is defined as packaging and shipping the
advices in bulk to the fund's principal office located offshore or to another
offshore location designated by the fund. The Company will provide the
Investment Company with a mailing report from its mailing operation which will
indicate the date on which all advices were mailed from such operation.
OBJECTIVE
The Company's objective is to manage this service so that 99% of such advices
are accurate and are mailed by the fifth business day following the date of
transaction, except where suppressed pursuant to instructions received from the
Investment Company.
METHOD OF CALCULATION
Should the Company fail to meet this objective, it would result in a credit to
the total cost of the mailing excluding postage billed to the Investment Company
for the month. The Company will calculate each week a weighted average percent
of the total daily advices produced that are mailed or sent late. For purposes
of such calculation the Company shall deem inaccurate advices to have been
mailed on the sixth business day past transaction date, summing the products,
and dividing the result by the total number of advices produced. This percentage
will then be compared to the schedule below to determine the total percentage
credit to the total cost of the mailing excluding postage billed to the
Investment Company for that month. This credit information would also be passed
to the Investment Company's Fund Accountant for allocation against fees to be
paid hereunder.
FEE CREDITS
Weighted Avg. Average Weekly Performance for Each Week Within the Month
OF LATE ADVICES WK. 1 WK. 2 WK. 3 WK. 4 WK. 5
1.01% to 2.00% 1.0% 1.5% 2.0% 2.5% 3.0%
2.01% to 3.00% 1.5% 2.0% 2.5% 3.0% 3.5%
3.01% to 4.00% 2.0% 2.5% 3.0% 3.5% 4.0%
4.01% or more 2.5% 3.0% 3.5% 4.0% 5.0%
<PAGE>
SERVICE LEVEL STANDARD 4: TIMELINESS OF DISTRIBUTION CHECKS AND
DIVIDEND MAILINGS
SERVICE DESCRIPTION
Periodically, the Company will create and mail checks to certain Investment
Company's shareholders. For offshore funds, "mailing" or "mailed" is defined as
packaging and shipping the checks and dividend mailings in bulk to the fund's
principal office located offshore or to another offshore location designated by
the fund. The Company will provide the Investment Company with a mailing report
from its mailing operation, indicating the date on which all dividend or
distribution checks were mailed.
OBJECTIVE
The Company's objective is to manage this service so that 99% of all checks are
mailed no more than five (5) business days from the payable date of the check.
METHOD OF CALCULATION
Should the Company fail to meet this objective, it would result in a credit to
total cost of the mailing billed to the Investment Company affected by the
delay. Using the mailing report, the Company will calculate an average number of
business days past payable date for all late checks during the month for the
Investment Company. This average shall be determined by multiplying each late
advice by the number of business days pays payable date, summing those products,
and dividing the result by the total number of late checks. That number will be
compared to the schedule below to determine the percentage credit to the total
cost of the mailing,excluding postage, billed to the Investment Company for the
month. This fee credit information would also be passed to the Investment
Company's Fund Accountant for allocation against the fees to be paid hereunder.
FEE CREDITS
BUSINESS DAYS PAST DATE OF CHECK
6 7 8
but less but less but less
THAN 7 THAN 8 THAN 9 10 OR MORE
------ ------ ------ ----------
Credit to the 1.0% 2.5% 4.0% 5.0%
the total cost of the mailing,
excluding postage
<PAGE>
SERVICE LEVEL STANDARD 5: TELEPHONE RESPONSIVENESS
SERVICE DESCRIPTION
The Company will provide a 12-hour telephone answering service for shareholders'
agents or brokers and possibly shareholders of the Investment Company. Telephone
transactions may include, without limitation, exchanges and redemptions,
purchases where authorized, balance inquiries, N.A.V. and yield quotations, and
others. The percentage of calls answered by service representatives to calls
directed to the services representatives for the month represents the Company's
service level.
OBJECTIVE
The Company's objective is to manage this service to a performance level of 98%
calls answered to calls received, and for purposes of the calculation method
below, shall omit any call terminated within 15 seconds.
METHOD OF CALCULATION
Using data from its Automated Call Distribution system ("ACD"), the Company will
prepare a report for the Investment Company calculating the average telephone
responsiveness for each week. Calls directed to the automated voice response
system will not be included in the calculation. Such number will be compared to
the schedule below to determine the total percentage credit to Transfer Agency
fees, excluding out of pocket expenses, billed to the Investment Company for the
month. This credit information would also be passed to the Investment Company's
Fund Accountant for allocation against fees to be paid hereunder.
FEE CREDITS
% of Calls
Answered Average Performance Level for Each Week Within the Period
LESS THAN WK. 1 WK. 2 WK. 3 WK. 4 WK. 5
98% 1.0% 1.5% 2.0% 2.5% 3.0%
97% 1.5% 2.0% 2.5% 3.0% 3.5%
96% 2.0% 2.5% 3.0% 3.5% 4.0%
95% 2.5% 3,0% 3.5% 4.0% 5.0%
Exhibit 11(a) under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 1 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
September 19, 1997, relating to the statement of assets and liabilities of
Deutsche Top 50 World, Deutsche Top 50 Europe, Deutsche Top 50 Asia, Deutsche
Top 50 US, Deutsche European Mid-Cap Fund, Deutsche German Equity Fund, Deutsche
Japanese Equity Fund, Deutsche Global Bond Fund and Deutsche European Bond Fund
(nine of eleven separate funds constituting Deutsche Funds, Inc.), which report
appears in such Statement of Additional Information, and to the incorporation by
reference of our report into the Prospectuses which constitutes part of this
Registration Statement. We also consent to the reference to us under the heading
"Independent Accountants" in such Statement of Additional Information. /s/ Price
Waterhouse LLP Price Waterhouse LLP New York, New York April 9, 1998
Exhibit 11(b) under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 1 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
September 22, 1997, relating to the statement of assets and liabilities of
Deutsche US Money Market Fund and Deutsche Institutional US Money Market Fund
(two of eleven separate funds constituting Deutsche Funds, Inc.), which appears
in such Statement of Additional Information, and to the incorporation by
reference of our report into the Prospectus which constitutes part of this
Registration Statement. We also consent to the reference to us under the heading
"Independent Accountants" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
April 9, 1998
Exhibit 11(c) under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 1 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
September 22, 1997, relating to the statement of assets and liabilities of US
Money Market Portfolio (US Dollar) (one of ten separate portfolios constituting
Deutsche Portfolios), which report appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Independent Accountants" in
such Statement of Additional Information.
/s/ Price Waterhouse
Price Waterhouse
Curacao, Netherlands Antilles
April 9, 1997
Exhibit 11(d) under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 1 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
September 19, 1997, relating to the statement of assets and liabilities of Top
50 World Portfolio (US Dollar), Top 50 Europe Portfolio (US Dollar), Top 50 Asia
Portfolio (US Dollar), Top 50 US Portfolio (US Dollar), Provesta Portfolio (US
Dollar), Investa Portfolio (US Dollar), Japanese Equity Portfolio (US
Portfolio), Global Bond Portfolio (US Dollar) and European Bond Portfolio (US
Dollar) (nine of ten separate portfolios constituting Deutsche Portfolios),
which report appears in such Statement of Additional Information, and to the
incorporation by reference of our report into the Prospectuses which constitutes
part of this Registration Statement. We also consent to the reference to us
under the heading "Independent Accountants" in such Statement of Additional
Information.
/s/ Price Waterhouse
Price Waterhouse
Curacao, Netherlands Antilles
April 9, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Deutsche Funds, Inc This schedule contains summary financial
information
NSAR extracted from Deutsche Funds,
Inc.
Financial Data form N-SAR for the period ended February 28,
Schedule Template 1998
and is qualified in its entirety by reference
to
Series such financial statements.
1 </LEGEND>
<SERIES>
<NUMBER> 1
<NAME> Deutsche Top 50
World
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 33,093
<INVESTMENTS-AT-VALUE> 36,079
<RECEIVABLES> 54,349
<ASSETS-OTHER> 11,553
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 101,981
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 64,863
<TOTAL-LIABILITIES> 64,863
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,693
<SHARES-COMMON-STOCK> 2,756
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> 115
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 324
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,986
<NET-ASSETS> 37,118
<DIVIDEND-INCOME> 194
<INTEREST-INCOME> 52
<OTHER-INCOME> 0
<EXPENSES-NET> 131
<NET-INVESTMENT-INCOME> 115
<REALIZED-GAINS-CURRENT> 324
<APPREC-INCREASE-CURRENT> 2,986
<NET-CHANGE-FROM-OPS> 3,425
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,073
<NUMBER-OF-SHARES-REDEEMED> 206
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 26,006
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 54,480
<AVERAGE-NET-ASSETS> 20,109
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.93
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.47
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Deutsche This schedule contains summary financial
Funds, Inc information
NSAR extracted from Deutsche Funds,
Inc.
Financial Data form N-SAR for the period ended February 28,
Schedule 1998
Template
and is qualified in its entirety by reference
to
Series such financial statements.
2 </LEGEND>
<SERIES>
<NUMBER> 2
<NAME> Deutsche Top 50
Europe
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 14,825
<INVESTMENTS-AT-VALUE> 15,908
<RECEIVABLES> 54,490
<ASSETS-OTHER> 11,560
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 81,958
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 64,674
<TOTAL-LIABILITIES> 64,674
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,111
<SHARES-COMMON-STOCK> 1,291
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> (7)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 97
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,083
<NET-ASSETS> 17,284
<DIVIDEND-INCOME> 25
<INTEREST-INCOME> 53
<OTHER-INCOME> 0
<EXPENSES-NET> 85
<NET-INVESTMENT-INCOME> (7)
<REALIZED-GAINS-CURRENT> 97
<APPREC-INCREASE-CURRENT> 1,083
<NET-CHANGE-FROM-OPS> 1,173
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 402
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,173
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 54,575
<AVERAGE-NET-ASSETS> 12,963
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 0.9
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.39
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Deutsche This schedule contains summary financial
Funds, Inc information
NSAR extracted from Deutsche Funds,
Inc.
Financial Data form N-SAR for the period ended February 28,
Schedule 1998
Template
and is qualified in its entirety by reference
to
Series such financial statements.
3 </LEGEND>
<SERIES>
<NUMBER> 3
<NAME> Deutsche Top 50 Asia
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 13,949
<INVESTMENTS-AT-VALUE> 14,996
<RECEIVABLES> 49,523
<ASSETS-OTHER> 11,636
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76,155
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 60,908
<TOTAL-LIABILITIES> 60,908
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,860
<SHARES-COMMON-STOCK> 1,305
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (661)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,047
<NET-ASSETS> 15,247
<DIVIDEND-INCOME> 29
<INTEREST-INCOME> 44
<OTHER-INCOME> 0
<EXPENSES-NET> 72
<NET-INVESTMENT-INCOME> 1
<REALIZED-GAINS-CURRENT> (661)
<APPREC-INCREASE-CURRENT> 1,047
<NET-CHANGE-FROM-OPS> 387
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 678
<NUMBER-OF-SHARES-REDEEMED> 262
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,136
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 49,595
<AVERAGE-NET-ASSETS> 11,778
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (0.81)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.69
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Deutsche This schedule contains summary financial
Funds, Inc information
NSAR extracted from Deutsche Funds,
Inc.
Financial Data form N-SAR for the period ended February 28,
Schedule 1998
Template
and is qualified in its entirety by reference
to
Series such financial statements.
4 </LEGEND>
<SERIES>
<NUMBER> 4
<NAME> Deutsche Top 50 US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 917,910
<INVESTMENTS-AT-VALUE> 1,038,124
<RECEIVABLES> 66,634
<ASSETS-OTHER> 11,553
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,116,311
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69,566
<TOTAL-LIABILITIES> 69,566
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 924,921
<SHARES-COMMON-STOCK> 75,089
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> (489)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,099
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 120,214
<NET-ASSETS> 1,046,745
<DIVIDEND-INCOME> 1,949
<INTEREST-INCOME> 1,344
<OTHER-INCOME> 0
<EXPENSES-NET> 3,782
<NET-INVESTMENT-INCOME> (489)
<REALIZED-GAINS-CURRENT> 2,099
<APPREC-INCREASE-CURRENT> 120,214
<NET-CHANGE-FROM-OPS> 121,824
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 74,200
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,035,634
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 70,416
<AVERAGE-NET-ASSETS> 620,031
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 1.45
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.94
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Deutsche This schedule contains summary financial
Funds, Inc information
NSAR extracted from Deutsche Funds,
Inc.
Financial Data form N-SAR for the period ended February 28,
Schedule 1998
Template
and is qualified in its entirety by reference
to
Series such financial statements.
5 </LEGEND>
<SERIES>
<NUMBER> 5
<NAME> Deutsche European Mid-Cap Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 17,411
<INVESTMENTS-AT-VALUE> 18,449
<RECEIVABLES> 48,961
<ASSETS-OTHER> 11,663
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 79,073
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 60,003
<TOTAL-LIABILITIES> 60,003
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,867
<SHARES-COMMON-STOCK> 1,446
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> (69)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 234
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,038
<NET-ASSETS> 19,070
<DIVIDEND-INCOME> 7
<INTEREST-INCOME> 3
<OTHER-INCOME> 0
<EXPENSES-NET> 79
<NET-INVESTMENT-INCOME> (69)
<REALIZED-GAINS-CURRENT> 234
<APPREC-INCREASE-CURRENT> 1,038
<NET-CHANGE-FROM-OPS> 1,203
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 557
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 7,959
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 49,040
<AVERAGE-NET-ASSETS> 13,357
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 0.74
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.19
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Deutsche This schedule contains summary financial
Funds, Inc information
NSAR extracted from Deutsche Funds,
Inc.
Financial Data form N-SAR for the period ended February 28,
Schedule 1998
Template
and is qualified in its entirety by reference
to
Series such financial statements.
6 </LEGEND>
<SERIES>
<NUMBER> 6
<NAME> Deutsche German Equity Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 18,140
<INVESTMENTS-AT-VALUE> 19,574
<RECEIVABLES> 48,962
<ASSETS-OTHER> 11,663
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80,199
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59,995
<TOTAL-LIABILITIES> 59,995
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,411
<SHARES-COMMON-STOCK> 1,469
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> (51)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 410
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,434
<NET-ASSETS> 20,204
<DIVIDEND-INCOME> 27
<INTEREST-INCOME> 4
<OTHER-INCOME> 0
<EXPENSES-NET> 82
<NET-INVESTMENT-INCOME> (51)
<REALIZED-GAINS-CURRENT> 410
<APPREC-INCREASE-CURRENT> 1,434
<NET-CHANGE-FROM-OPS> 1,793
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 580
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,093
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 49,044
<AVERAGE-NET-ASSETS> 13,903
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 1.28
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.75
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Deutsche This schedule contains summary financial
Funds, Inc information
NSAR extracted from Deutsche Funds,
Inc.
Financial Data form N-SAR for the period ended February 28,
Schedule 1998
Template
and is qualified in its entirety by reference
to
Series such financial statements.
7 </LEGEND>
<SERIES>
<NUMBER> 7
<NAME> Deutsche Japanese Equity Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 10,644
<INVESTMENTS-AT-VALUE> 9,681
<RECEIVABLES> 48,561
<ASSETS-OTHER> 11,663
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,905
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59,665
<TOTAL-LIABILITIES> 59,665
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,711
<SHARES-COMMON-STOCK> 944
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> (29)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (479)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (963)
<NET-ASSETS> 10,240
<DIVIDEND-INCOME> 4
<INTEREST-INCOME> 25
<OTHER-INCOME> 0
<EXPENSES-NET> 58
<NET-INVESTMENT-INCOME> (29)
<REALIZED-GAINS-CURRENT> (479)
<APPREC-INCREASE-CURRENT> (963)
<NET-CHANGE-FROM-OPS> (1,471)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 55
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (871)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 48,619
<AVERAGE-NET-ASSETS> 9,808
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> (1.62)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.85
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Deutsche This schedule contains summary financial
Funds, Inc information
NSAR extracted from Deutsche Funds,
Inc.
Financial Data form N-SAR for the period ended February 28,
Schedule 1998
Template
and is qualified in its entirety by reference
to
Series such financial statements.
8 </LEGEND>
<SERIES>
<NUMBER> 8
<NAME> Deutsche Global
Bond Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 12,036
<INVESTMENTS-AT-VALUE> 12,073
<RECEIVABLES> 49,415
<ASSETS-OTHER> 11,643
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 73,131
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 60,618
<TOTAL-LIABILITIES> 60,618
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,310
<SHARES-COMMON-STOCK> 983
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> 163
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37
<NET-ASSETS> 12,513
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 218
<OTHER-INCOME> 0
<EXPENSES-NET> 55
<NET-INVESTMENT-INCOME> 163
<REALIZED-GAINS-CURRENT> 3
<APPREC-INCREASE-CURRENT> 37
<NET-CHANGE-FROM-OPS> 203
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 94
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,402
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 49,470
<AVERAGE-NET-ASSETS> 11,292
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 0.06
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.73
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Deutsche This schedule contains summary financial
Funds, Inc information
NSAR extracted from Deutsche Funds,
Inc.
Financial Data form N-SAR for the period ended February 28,
Schedule 1998
Template
and is qualified in its entirety by reference
to
Series 9 such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 9
<NAME> Deutsche European Bond Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 13,793
<INVESTMENTS-AT-VALUE> 13,814
<RECEIVABLES> 48,812
<ASSETS-OTHER> 11,663
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 74,289
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59,942
<TOTAL-LIABILITIES> 59,942
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,111
<SHARES-COMMON-STOCK> 1,126
<SHARES-COMMON-PRIOR> 889
<ACCUMULATED-NII-CURRENT> 174
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 41
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21
<NET-ASSETS> 14,347
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 232
<OTHER-INCOME> 0
<EXPENSES-NET> 58
<NET-INVESTMENT-INCOME> 174
<REALIZED-GAINS-CURRENT> 41
<APPREC-INCREASE-CURRENT> 21
<NET-CHANGE-FROM-OPS> 236
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 237
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,236
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 48,870
<AVERAGE-NET-ASSETS> 11,980
<PER-SHARE-NAV-BEGIN> 12.5
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 0.09
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.74
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
DATA ENTRY SECTION
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Deutsche Funds, This schedule contains summary
Inc financial information
NSAR extracted from Deutsche
Funds, Inc.
Financial Data form N-SAR for the period ended
Schedule Template February 28, 1998
and is qualified in its entirety by
reference to
Series such financial statements.
1 </LEGEND>
<SERIES>
<NUMBER> 10
<NAME> Deutsche US Money Market
Fund, Class A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 100
<INVESTMENTS-AT-VALUE> 100
<RECEIVABLES> 0
<ASSETS-OTHER> 6,294
<OTHER-ITEMS-ASSETS>
68,000
<TOTAL-ASSETS> 74,394
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,294
<TOTAL-LIABILITIES> 6,294
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 68,100
<SHARES-COMMON-STOCK> 68,100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 68,100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 68,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 68,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Deutsche Funds, Inc This schedule contains summary financial
information
NSAR extracted from Deutsche Funds,
Inc.
Financial Data form N-SAR for the period ended February 28,
Schedule Template 1998
and is qualified in its entirety
by reference to
Series such financial statements.
1 </LEGEND>
<SERIES>
<NUMBER> 11
<NAME> Deutsche Institutional US Money
Market, Class Y
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 100
<INVESTMENTS-AT-VALUE> 100
<RECEIVABLES> 0
<ASSETS-OTHER> 6,294
<OTHER-ITEMS-ASSETS>
18,000
<TOTAL-ASSETS> 24,394
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,294
<TOTAL-LIABILITIES> 6,294
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,100
<SHARES-COMMON-STOCK> 18,100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 18,100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 18,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
