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. 5 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-------
Amendment No. 11 X
DEUTSCHE FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
Victor R. Siclari, Esquire
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) on pursuant to paragraph
(b) 60 days after filing pursuant to paragraph (a)(i)
X on December 31, 1999 pursuant to paragraph (a)(i) 75 days after filing
pursuant to paragraph (a)(ii) on _________________ pursuant to paragraph
(a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies To:
John T. Bostelman, Esquire
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Prospectus
FLAG INVESTORS TOP 50 WORLD
Class A Shares and Class B Shares
FLAG INVESTORS TOP 50 EUROPE
Class A Shares, Class B Shares and Class C Shares
FLAG INVESTORS TOP 50 ASIA
Class A Shares and Class B Shares
FLAG INVESTORS TOP 50 US
Class A Shares, Class B Shares and Class C Shares
FLAG INVESTORS EUROPEAN MID-CAP FUND
Class A Shares, Class B Shares and Class C Shares
FLAG INVESTORS JAPANESE EQUITY FUND
Class A Shares and Class B Shares
FLAG INVESTORS US MONEY MARKET FUND
Class A Shares and Class B Shares
FLAG INVESTORS INSTITUTIONAL US MONEY MARKET FUND
Class Y Shares
(Each a series of Flag Investors Funds, Inc. (formerly Deutsche Funds, Inc.), an
open-end management investment company, and each formerly named "Deutsche"
rather than "Flag Investors.")
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
table of Contents
Investment Objectives,
Strategies, Performance and
Risk What are the Funds'
Fees and Expenses? What are
the Funds' Investment
Strategies? What are the
Principal Securities in
Which the Funds Invest?
What are the Specific Risks
of Investing in the Funds?
What do Shares Cost?
How are the Funds Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Funds?
Financial Information
december 31, 1999
<PAGE>
12
Investment Objectives, Strategies, Performance and Risk
What are the Funds' objectives and principal investment strategies?
Each of the Funds is a series of Flag Investors Funds, Inc. Each Fund invests
all of its assets in a corresponding portfolio of Flag Investors Portfolios
Trust (formerly Deutsche Portfolios), with identical investment objectives and
policies through a Hub and Spoke(R) (master-feeder) investment fund structure.
Therefore, all discussions in the prospectus regarding investments relate to the
Funds and their corresponding Portfolios. For a table of the Funds and their
corresponding Portfolios, see "Organization" in the Funds' Statement of
Additional Information. No Fund represents a complete investment program, nor is
each Fund suitable for all investors.
Top 50 Funds -- an overview
Investment Objective: The investment objective of each of the Top 50 Funds is
high capital appreciation, and as a secondary objective, reasonable dividend
income.
The Top 50 Funds generally own equity securities of 50 companies. The portfolio
managers select companies they consider to be of outstanding quality in their
particular field based on some or all of the following attributes:
o strong market position within its market;
o profitability, predictability and duration of earnings growth,
reflected in sound balance sheet ratios and financial statements;
o high quality management with an orientation toward strong, long-term earnings;
o long-range strategic plans in place; o generally publicly-held with broad
distribution of financial information related to its operations.
Each Fund focuses on a different geographic region in selecting investments.
Top 50 World
Strategy: The Fund invests at least 65% of its total assets in equity securities
with significant emphasis on North America, Europe and Asia. The Fund seeks
international diversification, although there is no specific percentage limit on
investments in a single country.
The Fund invests in companies with a strong market position that 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"): o strong population growth in emerging markets; o aging
population in industrialized nations, leading to growing demands for the
products and services of
healthcare and related industries;
o transition to an information and communications society;
o growing demand for brand names;
o growing oil/energy consumption worldwide.
Top 50 Europe
Strategy: The Fund invests at least 65% of its total assets in equity securities
of companies in Europe. The Fund selects companies with above-average potential
for capital gain. The Fund emphasizes investments in companies that have clear
strategic goals, that concentrate on their core businesses, and whose management
gives appropriate consideration to return on investment.
The Fund targets companies which are well-positioned to take advantage of the
introduction of the single European currency. The Fund focuses on stocks which
meet its high standards in terms of management quality, earnings growth and
shareholder-oriented information policies.
The advent of the European Monetary Union (EMU) has increased the importance of
the European equity markets and allowed a broader allocation of investments
among many countries rather than focusing investments in historically stable
countries. The Fund has increased its focus on European stocks and reduced its
exposure to German equity stocks.
The Fund may also select companies that have restructuring potential along with
strong value-oriented management strategies.
Top 50 Asia
Strategy: The Fund invests at least 65% of its total assets in equity securities
of companies located or having a business focus (a majority of its profits or
sales made) in Asian countries. The Fund selects companies that have some or all
of the following attributes: o strong prospects for medium-term growth; o solid
market position, with favorable financial performance and indicators; and o high
quality management whose aim is toward longer-term earnings, with a strategic
view of their
companies and markets.
Top 50 US
Strategy: The Fund invests at least 65% of its total assets in equity securities
of United States companies. These companies are located or headquartered in the
United States, but may also conduct a substantial part of their business outside
the U.S. The Fund emphasizes investments in companies that dominate their
markets and maintain a leadership position through the combination of: o
management talent; o product or service differentiation; o economies of scale;
and o financial strength. In the opinion of the Fund's Adviser, these companies
are aggressive, tenacious and are generally referred to as "Bulldogs". They are
leading-edge U.S. corporations and have a "no holds barred" attitude geared
toward market share dominance.
In selecting investments, the Fund will also emphasize the market valuation of a
company's earnings (i.e., price/earnings or P/E ratio), as well as the
predictability and durability of its earnings growth. The analysis of industry
trends is also an important factor in the portfolio management process.
SPECIAL equity Funds
European Mid-Cap Fund
Investment Objective: High capital appreciation, and as a secondary objective,
reasonable dividend income.
Strategy: The Fund invests at least 65% of its total assets in the equity
securities of European companies with market capitalizations of between $115
million and $19 billion. The Fund's Adviser selects companies that it believes
may have a higher than average growth rate for European companies. This may
cause the Fund's share price and returns to be more volatile and risky than
other equity funds.
While the Fund intends to be fully invested in equity securities, it may invest
up to 20% of its net assets in fixed income securities (other than bank deposits
and money market instruments).
<PAGE>
Japanese Equity Fund
Investment Objective: High capital appreciation.
Strategy: The Fund invests at least 65% of its total assets in equity securities
of Japanese companies. While the Fund intends to be fully invested in equity
securities, it may invest up to 30% of its net assets in fixed income securities
(other than bank deposits and money market instruments). The Fund invests in
large- and mid-sized companies which have a clearly-defined competitive edge
based upon quality of management, product, service, balance sheet, innovation
and low costs. The target is to outperform the Tokyo Stock Price Index (TOPIX),
although there is no guarantee that it will do so.
MONEY MARKET Funds
US Money Market Fund (Class A and Class B Shares) and Institutional US Money
Market Fund (Class Y Shares)
Investment Objective: As high a level of current income as is consistent with
the preservation of capital and the maintenance of liquidity.
Strategy: Each Fund seeks to maintain a stable net asset value of $1.00 by
investing only in short-term, high-quality money market instruments.
<PAGE>
What are the Main Risks of Investing in the Funds?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Funds. The primary factors that may reduce the Funds'
returns are listed below.
Equity Funds
Investments in the Equity Funds entail the following risks:
o Stock market risks -- the value of securities rise and fall;
o Sector risks -- the possibility that certain sectors may underperform other
sectors or the market as a whole;
o Liquidity risks -- the foreign securities in which the Funds (except Top 50
US) invest may trade infrequently and may be subject to greater fluctuation
in price than other securities;
o Currency risks (except Top 50 US)-- fluctuations in the exchange rate
between the U.S. dollar and foreign currencies;
o Risks of investing in specific regions (except Top 50 US) -- certain of the
Funds may invest a significant portion of their assets in a particular
foreign country or geographic region, which makes the Funds subject to
greater currency risk and more susceptible to adverse impact from actions
of foreign governments;
o Risks of foreign investing -- the foreign markets in which the Funds
(except Top 50 US) invest may be subject to different economic or political
conditions from those of the United States and may lack financial reporting
standards or regulatory requirements compared to those applicable to U.S.
companies;
o Risks of investing in emerging market countries -- prices of emerging
market securities in which the Funds (except Top 50 US and Japanese Equity
Fund) invest can be significantly more volatile than prices of securities
in developed countries;
o Risks related to company size (European Mid-Cap Fund and Japanese Equity
Fund only) -- mid- and small-market capitalization companies tend to have
fewer shareholders, less liquidity, more volatility, unproven track
records, limited products or services and limited access to capital;
o Credit risks -- the possibility that an issuer will default on a security
by failing to pay interest or principal when due; and
o Risks of non-diversification -- as non-diversified Funds, they are allowed
to invest a higher percentage of their assets among fewer issuers of
portfolio securities than diversified Funds. This increases the Funds'
risks by magnifying the impact (positively or negatively) that any one
issuer has on the Funds' share price and performance. Despite this ability
to invest in fewer issuers, the Funds generally attempt to maintain
exposure to a broad number of issuers.
To the extent the Equity Funds can invest in fixed income securities, Equity
Funds also will have the following risks.
o Interest rate risks -- prices of fixed income securities rise and fall in
response to interest rate changes; and
o Prepayment risks -- the possibility that an issuer may redeem a fixed income
security before maturity.
Money Market Funds
Although the Funds seek to preserve the value of your investment at $1.00 per
Share, it is possible to lose money by investing in the Funds. Investments in
the Money Market Funds entail the following risks:
o Credit risks -- the possibility that an issuer will default on a security
by failing to pay interest or principal when due;
o Interest rate risks -- prices of fixed income securities rise and fall in
response to interest rate changes; and
None of the Funds can guarantee that it will achieve its investment objective.
The Shares of all the Funds offered by this prospectus are not deposits or
obligations of any bank, are not endorsed or 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.
Risk/Return Bar Charts and Tables
The following pages show performance information for each Fund except the Money
Market Funds. Performance information for the Money Market Funds will be
provided after they have been in operation for a full calendar year. This
information gives you an indication of the risks of investing in a Fund by
comparing its performance with a broad measure of market performance. While past
performance of a Fund does not necessarily predict future performance, the
following information provides you with historical performance information to
assist you in analyzing how each Fund's investment risks may be balanced by
their potential rewards. For more current performance information, call
1-888-433-6385.
Bar Charts
The bar charts represent the 1998 calendar year performance of Class A Shares
of each Fund (which is the share class with the longest operating history).
The bar charts do not reflect the maximum sales charge imposed on Class A
Shares. If these charges or fees had been included, the return would have
been lower. Following each bar chart is the year-to-date performance of a
Fund's Class A Shares through the most recent calendar quarter, again without
reflecting any applicable sales charge imposed on Class A Shares. Also
provided is the best and worst 1998 calendar quarter performance for Class A
Shares.
Total Return
The Average Annual Total Return for Class A Shares of the Funds is compared
to an appropriate broad-based securities market index for certain periods
ended December 31, 1998. Unlike the performance information shown in the bar
charts, the Funds' total return figures reflect the maximum sales charges
that could apply. The market indices are unmanaged and are not adjusted for
any sales charges, expenses or other fees the SEC requires to be reflected in
the Funds' performance. You cannot invest directly in an index.
<PAGE>
Top 50 World
- -------------------------------------------------------
Annual Total Return
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Class A Shares of Top 50 World as of the calendar
year-end for one year.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 5.00% up to 30.00%.
The `x' axis represents the calculation period from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features one distinct
vertical bar, shaded in charcoal, and visually representing by height the total
return percentage for the calendar year end 1998. The calculated total return
percentage for the Fund for the calendar year is stated directly at the top of
the bar. The percentage noted is: 27.71%. The Fund's Class A Shares total return
from January 1, 1999 to September 30, 1999 was ___%. Best quarter (4Q98) 23.20%
Worst quarter (3Q98) -11.89% Average Annual Total Return* (for the periods ended
December 31, 1998)
Since Start
1 Year of
Performance**
- ------------------- -- ------------- -- ---------------
Class A Shares 20.64% 14.73%
- --------------------- --- ------------- -- ------------
- --------------------- --- ------------- -- ------------
MSCI World Index % %
- ------------------- -- -------------- --- -------------
- ------------------- -- -------------- --- -------------
* The table shows the Fund's total returns averaged over a period of years
relative to the MSCI World Index, a broad-based market index of foreign equity
securities.
** Class A Shares: October 2, 1997
Top 50 Europe
- -------------------------------------------------------
Annual Total Return
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Class A Shares of Top 50 Europe as of the calendar
year-end for one year.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 2.00% up to 12.00%.
The `x' axis represents the calculation period from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features one distinct
vertical bar, shaded in charcoal, and visually representing by height the total
return percentage for the calendar year end 1998. The calculated total return
percentage for the Fund for the calendar year is stated directly at the top of
the bar. The percentage noted is: 10.36%. The Fund's Class A Shares total return
from January 1, 1999 to September 30, 1999 was ___%. Best quarter (1Q98) 13.21%
Worst quarter (3Q98) -20.60% Average Annual Total Return* (for the periods ended
December 31, 1998)
Since Start
1 Year of
Performance**
- ------------------- -- ------------- -- ---------------
Class A Shares 4.32% 1.81%
- --------------------- --- ------------- -- ------------
- --------------------- --- ------------- -- ------------
MSCI Europe Index % %
- ------------------- -- -------------- --- -------------
- ------------------- -- -------------- --- -------------
* The table shows the Fund's total returns averaged over a period of years
relative to the MSCI Europe Index, a broad-based market index of European equity
securities.
** Class A Shares: October 2, 1997
<PAGE>
Top 50 Asia
- -------------------------------------------------------
Annual Total Return
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Class A Shares of Top 50 Asia as of the calendar year-end
for one year.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 2.00% up to 10.00%.
The `x' axis represents the calculation period from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features one distinct
vertical bar, shaded in charcoal, and visually representing by height the total
return percentage for the calendar year end 1998. The calculated total return
percentage for the Fund for the calendar year is stated directly at the top of
the bar. The percentage noted is: 9.12%. The Fund's Class A Shares total return
from January 1, 1999 to September 30, 1999 was ___%. Best quarter (4Q98) 37.15%
Worst quarter (2Q98) -19.84% Average Annual Total Return* (for the periods ended
December 31, 1998)
Since Start
1 Year of
Performance**
- ------------------- -- ------------- -- ---------------
Class A Shares 3.08% -10.66%
- --------------------- --- ------------- -- ------------
- --------------------- --- ------------- -- ------------
MSCI Pacific % %
ex-Japan Index
- ------------------- -- -------------- --- -------------
- ------------------- -- -------------- --- -------------
* The table shows the Fund's total returns averaged over a period of years
relative to the MSCI Pacific ex-Japan Index, a broad-based market index of
Asia-Pacific (except Japan) equity securities.
** Class A Shares: October 14, 1997
Top 50 US
- -------------------------------------------------------
Annual Total Return
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Class A Shares of Top 50 US as of the calendar year-end
for one year.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 5.00% up to 35.00%.
The `x' axis represents the calculation period from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features one distinct
vertical bar, shaded in charcoal, and visually representing by height the total
return percentage for the calendar year end 1998. The calculated total return
percentage for the Fund for the calendar year is stated directly at the top of
the bar. The percentage noted is: 33.88%. The Fund's Class A Shares total return
from January 1, 1999 to September 30, 1999 was ___%. Best quarter (4Q98) 27.37%
Worst quarter (3Q98) -11.04% Average Annual Total Return* (for the periods ended
December 31, 1998)
Since Start
1 Year of
Performance**
- ------------------- -- ------------- -- ---------------
Class A Shares 26.52% 22.40%
- --------------------- --- ------------- -- ------------
- --------------------- --- ------------- -- ------------
S&P 500 Index % %
- ------------------- -- -------------- --- -------------
- ------------------- -- -------------- --- -------------
* The table shows the Fund's total returns averaged over a period of years
relative to Standard & Poor's (S&P) 500 Index, a broad-based market index of
U.S. equity securities.
** Class A Shares: October 2, 1997
<PAGE>
European Mid-Cap Fund
- -------------------------------------------------------
Annual Total Return
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Class A Shares of European Mid-Cap Fund as of the
calendar year-end for one year.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 5.00% up to 25.00%.
The `x' axis represents the calculation period from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features one distinct
vertical bar, shaded in charcoal, and visually representing by height the total
return percentage for the calendar year end 1998. The calculated total return
percentage for the Fund for the calendar year is stated directly at the top of
the bar. The percentage noted is: 24.98%. The Fund's Class A Shares total return
from January 1, 1999 to September 30, 1999 was ___%.
Best quarter (1Q98) 17.98%
Worst quarter (3Q98) -15.56%
Average Annual Total Return*
(for the periods ended December 31, 1998)
Since Start
1 Year of
Performance**
- -------------------- -- ------------ --- --------------
Class A Shares 18.13% 10.17%
- ----------------------- -- ------------- --- ----------
- ----------------------- -- ------------- --- ----------
MDAX % %
- ----------------------- -- ------------- --- ----------
MSCI Europe Index % %
- -------------------- -- -------------- -- -------------
- -------------------- -- -------------- -- -------------
* The table shows the Fund's total returns averaged over a period of years
relative to the Midcap Index (MDAX), a broad-based market index of 70 German
blue-chip stocks. The Fund's Adviser has elected to change the benchmark index
from the MSCI Europe Index (a broad-based market index of European equity
securities) to the MDAX because the MDAX is more representative of the
securities in which the Fund invests. ** Class A Shares: October 17, 1997
Japanese Equity Fund
- -------------------------------------------------------
Annual Total Return
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Class A Shares of Japanese Equity Fund as of the calendar
year-end for one year.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 1.00% up to 5.00%.
The `x' axis represents the calculation period from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features one distinct
vertical bar, shaded in charcoal, and visually representing by height the total
return percentage for the calendar year end 1998. The calculated total return
percentage for the Fund for the calendar year is stated directly at the top of
the bar. The percentage noted is: 4.70%. The Fund's Class A Shares total return
from January 1, 1999 to September 30, 1999 was ___%.
Best quarter (4Q98) 16.89% Worst quarter (3Q98) -7.02% Average Annual Total
Return* (for the periods ended December 31, 1998)
Since Start
1 Year of
Performance**
- ------------------- -- ------------- -- ---------------
Class A Shares -1.07% -13.35%
- --------------------- -- --------------- -- -----------
- --------------------- -- --------------- -- -----------
MSCI Japan Index % %
- ------------------- -- -------------- --- -------------
- ------------------- -- -------------- --- -------------
* The table shows the Fund's total returns averaged over a period of years
relative to the MSCI Japan Index, a broad-based market index of equity
securities listed on the Tokyo Stock Exchange.
** Class A Shares: October 20, 1997
<PAGE>
15
What are the Funds' Fees and Expenses?
CLASS A SHARES
This table describes the fees and expenses of the Funds including those of the
corresponding Portfolios that you may pay if you buy and hold Class A Shares of
the Funds. The Equity Funds include the Top 50 Funds, European Mid-Cap Fund, and
Japanese Equity Fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Shareholder Fees Equity US Money
(Fees Paid Directly From Your Investment) Funds Market Fund
- ----------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering 5.50% None
price)
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase 0.00%(1) 0.00%
price or redemption proceeds, as applicable)
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (or other None None
Distributions)
(as a percentage of reinvestment price)
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if applicable) None None
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Exchange Fee None None
- ----------------------------------------------------------------------------------------------------------------
1 A maximum 1% contingent deferred sales charge may be imposed on redemptions
of certain Shares purchased without an initial sales charge.
Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets) Top 50 World Top 50 Europe Top 50 Asia Top 50 US
- ------------------------------------------------------------------------------------------------------------------
Management Fee 1.00% 1.00% 1.00% 0.85%
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees 0.25% 0.25% 0.25% 0.25%
- ------------------------------------------------------------------------------------------------------------------
Other Expenses 7.51% 3.66% 2.13% 4.97%
- ------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 8.76% 4.91% 3.38% 6.07%
(before reimbursements)
==================================================================================================================
Total Reimbursements of Fund Expenses 7.16% 3.31% 1.78% 4.57%
==================================================================================================================
Total Actual Annual Fund Operating Expenses 1.60% 1.60% 1.60% 1.50%
(after reimbursements)(1)
==================================================================================================================
Annual Fund Operating Expenses (continued)
Expenses That are Deducted From Fund Assets European Japanese Equity
(as a percentage of average net assets) Mid-Cap Fund Fund
- ------------------------------------------------------------------------------------------------------------------
Management Fee 0.85% 0.85%
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees 0.25% 0.25%
- ------------------------------------------------------------------------------------------------------------------
Other Expenses 3.13% 6.07%
- ------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 4.23% 7.17%
(before reimbursements)
==================================================================================================================
Total Reimbursements of Fund Expenses 2.63% 5.57%
==================================================================================================================
Total Actual Annual Fund Operating Expenses 1.60% 1.60%
(after reimbursements)(1)
==================================================================================================================
Annual Fund Operating Expenses (continued)
Expenses That are Deducted From Fund Assets US Money Market Fund
(as a percentage of average net assets)
- ----------------------------------------------------------------------------------------
Management Fee 0.15%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees 0.25%
- ----------------------------------------------------------------------------------------
Other Expenses 1.34%
- ----------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.74%
(before reimbursements)
========================================================================================
Total Reimbursements of Fund Expenses 1.19%
========================================================================================
Total Actual Annual Fund Operating Expenses 0.55%
(after reimbursements)(1)
========================================================================================
</TABLE>
1 The Manager has contractually agreed to waive its fees and reimburse expenses
of each Fund through August 31, 2000 to the extent necessary to maintain such
Fund's expense ratio at the level indicated as "Total Actual Annual Fund
Operating Expenses (after reimbursements)."
Example
This Example is intended to help you compare the cost of investing in the Funds'
Class A Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Funds' Class A Shares for
the time periods indicated and then redeem all of your Shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Class A Shares' operating expenses remain the same during
the period. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Class A Shares 1 Year 3 Years 5 Years 10 Years
Top 50 World
Expenses before reimbursements $1,362 $2,896 $4,317 $7,427
Expenses after reimbursements $704 $1,027 $1,373 $2,346
Top 50 Europe
Expenses before reimbursements $1,014 $1,944 $2,875 $5,211
Expenses after reimbursements $704 $1,027 $1,373 $2,346
Top 50 Asia
Expenses before reimbursements $872 $1,532 $2,213 $4,015
Expenses after reimbursements $704 $1,027 $1,373 $2,346
Top 50 US
Expenses before reimbursements $1,121 $2,243 $3,342 $5,988
Expenses after reimbursements $694 $998 $1,323 $2,242
European Mid-Cap Fund
Expenses before reimbursements $951 $1,763 $2,588 $4,705
Expenses after reimbursements $704 $1,027 $1,373 $2,346
Japanese Equity Fund
Expenses before reimbursements $1,220 $2,517 $3,759 $6,634
Expenses after reimbursements $704 $1,027 $1,373 $2,346
US Money Market Fund
Expenses before reimbursements $177 $548 $944 $2,052
Expenses after reimbursements $56 $176 $307 $689
</TABLE>
<PAGE>
CLASS B SHARES
This table describes the fees and expenses of the Funds including those of the
corresponding Portfolios that you may pay if you buy and hold Class B Shares of
the Funds. The Equity Funds include the Top 50 Funds, European Mid-Cap Fund, and
Japanese Equity Fund.
<TABLE>
<CAPTION>
<S> <C> <C>
Shareholder Fees Equity US Money
(Fees Paid Directly From Your Investment) Funds Market Fund
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering None None
price)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase 5.00% 5.00%
price or redemption proceeds, as applicable) (1)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None None
Distributions)
(as a percentage of reinvestment price)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if applicable) None None
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Exchange Fee None None
- ----------------------------------------------------------------------------------------------------------
1 The contingent deferred sales charge declines from the maximum amount to 1% in the sixth year, and 0%
thereafter.
Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets) Top 50 World Top 50 Europe Top 50 Asia Top 50 US
- ------------------------------------------------------------------------------------------------------------------
Management Fee 1.00% 1.00% 1.00% 0.85%
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees 1.00% 1.00% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------
Other Expenses 7.51% 3.66% 2.13% 4.97%
- ------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 9.51% 5.66% 4.13% 6.82%
(before reimbursements)
==================================================================================================================
Total Reimbursements of Fund Expenses 7.16% 3.31% 1.78% 4.57%
==================================================================================================================
Total Actual Annual Fund Operating Expenses 2.35% 2.35% 2.35% 2.25%
(after reimbursements)(1)
==================================================================================================================
Annual Fund Operating Expenses (continued)
Expenses That are Deducted From Fund Assets European Japanese Equity
(as a percentage of average net assets) Mid-Cap Fund Fund
- ------------------------------------------------------------------------------------------------------------------
Management Fee 0.85% 0.85%
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------
Other Expenses 3.13% 6.07%
- ------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 4.98% 7.92%
(before reimbursements)
==================================================================================================================
Total Reimbursements of Fund Expenses 2.63% 5.57%
==================================================================================================================
Total Actual Annual Fund Operating Expenses 2.35% 2.35%
(after reimbursements)(1)
==================================================================================================================
Annual Fund Operating Expenses (continued)
Expenses That are Deducted From Fund Assets US Money Market Fund
(as a percentage of average net assets)
- ----------------------------------------------------------------------------------------
Management Fee 0.15%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees 1.00%
- ----------------------------------------------------------------------------------------
Other Expenses 1.34%
- ----------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.49%
(before reimbursements)
========================================================================================
Total Reimbursements of Fund Expenses 1.19%
========================================================================================
Total Actual Annual Fund Operating Expenses 1.30%
(after reimbursements)(1)
========================================================================================
</TABLE>
1 The Manager has contractually agreed to waive its fees and reimburse expenses
of each Fund through August 31, 2000 to the extent necessary to maintain such
Fund's expense ratio at the level indicated as "Total Actual Annual Fund
Operating Expenses (after reimbursements)."
<PAGE>
Example
This Example is intended to help you compare the cost of investing in the Funds'
Class B Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Funds' Class B Shares for
the time periods indicated and then redeem all of your Shares at the end of
those periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Class B
Shares' operating expenses remain the same during the period. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Class B Shares 1 Year 3 Years 5 Years 10 Years
Top 50 World
Expenses before reimbursements:
Assuming redemption fee $1,407 $2,926 $4,406 $7,619
Assuming no redemption fee $930 $2,665 $4,247 $7,619
Expenses after reimbursements:
Assuming redemption fee $738 $1,050 $1,477 $2,686
Assuming no redemption fee $238 $733 $1,255 $2,686
Top 50 Europe
Expenses before reimbursements:
Assuming redemption fee $1,061 $1,975 $2,977 $5,477
Assuming no redemption fee $564 $1,681 $2,784 $5,477
Expenses after reimbursements:
Assuming redemption fee $738 $1,050 $1,477 $2,686
Assuming no redemption fee $238 $733 $1,255 $2,686
Top 50 Asia Expenses before reimbursements:
Assuming redemption fee $915 $1,561 $2,317 $4,314
Assuming no redemption fee $415 $1,255 $2,110 $4,314
Expenses after reimbursements:
Assuming redemption fee $738 $1,050 $1,477 $2,686
Assuming no redemption fee $238 $733 $1,255 $2,686
Top 50 US Expenses before reimbursements:
Assuming redemption fee $1,167 $2,275 $3,441 $6,230
Assuming no redemption fee $676 $1,991 $3,258 $6,230
Expenses after reimbursements:
Assuming redemption fee $728 $1,020 $1,428 $2,585
Assuming no redemption fee $228 $703 $1,205 $2,585
European Mid-Cap Fund
Expenses before reimbursements:
Assuming redemption fee $998 $1,795 $2,691 $4,985
Assuming no redemption fee $498 $1,494 $2,491 $4,985
Expenses after reimbursements:
Assuming redemption fee $738 $1,050 $1,477 $2,686
Assuming no redemption fee $238 $733 $1,255 $2,686
Japanese Equity Fund
Expenses before reimbursements:
Assuming redemption fee $1,266 $2,548 $3,853 $6,855
Assuming no redemption fee $780 $2,274 $3,681 $6,855
Expenses after reimbursements:
Assuming redemption fee $738 $1,050 $1,477 $2,686
Assuming no redemption fee $238 $733 $1,255 $2,686
<PAGE>
- -------------------------------------------------------------------------------------------
US Money Market Fund
Expenses before reimbursements:
Assuming redemption fee $752 $1,091 $1,546 $2,826
Assuming no redemption fee $252 $776 $1,326 $2,826
Expenses after reimbursements:
Assuming redemption fee $632 $735 $944 $1,568
Assuming no redemption fee $132 $412 $713 $1,568
</TABLE>
CLASS C SHARES
This table describes the fees and expenses of the Funds including those of the
corresponding Portfolios that you may pay if you buy and hold Class C Shares of
the Funds. The Equity Funds include the Top 50 Europe Fund, the Top 50 US Fund,
and the European Mid-Cap Fund.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Fees Equity Funds
(Fees Paid Directly From Your Investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering None
price)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or 1.00%ption proceeds, as applicable) (1)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None
Distributions)
(as a percentage of reinvestment price)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if applicable) None
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Exchange Fee None
- -----------------------------------------------------------------------------------------------
</TABLE>
1 The contingent deferred sales charge is assessed on the lower of the original
purchase price or the current net asset value of Shares redeemed within one
year of purchase.
<TABLE>
<CAPTION>
<S> <C> <C>
Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets) Top 50 US Top 50 European
- -----------------------------------------------------------------------------------
Management Fee 0.85% 1.00%
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees 1.00% 1.00%
- -----------------------------------------------------------------------------------
Other Expenses 4.97% 3.66%
- -----------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 6.82% 5.66%
(before reimbursements)
===================================================================================
Total Reimbursements of Fund Expenses 4.57% 3.31%
===================================================================================
Total Actual Annual Fund Operating Expenses 2.25% 2.35%
(after reimbursements)(1)
===================================================================================
</TABLE>
Annual Fund Operating Expenses (continued)
Expenses That are Deducted From Fund Assets European
(as a percentage of average net assets) Mid-Cap Fund
- --------------------------------------------------------------------------------
Management Fee 0.85%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees 1.00%
- --------------------------------------------------------------------------------
Other Expenses 3.13%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 4.98%
(before reimbursements)
================================================================================
Total Reimbursements of Fund Expenses 2.63%
================================================================================
Total Actual Annual Fund Operating Expenses 2.35%
(after reimbursements)(1)
================================================================================
1 The Manager has contractually agreed to waive its fees and reimburse expenses
of each Fund through August 31, 2000 to the extent necessary to maintain such
Fund's expense ratio at the level indicated as "Total Actual Annual Fund
Operating Expenses (after reimbursements)."
Example
This Example is intended to help you compare the cost of investing in the Funds'
Class C Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Funds' Class C Shares for
the time periods indicated and then redeem all of your Shares at the end of
those periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Class C
Shares' operating expenses remain the same during the period. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
Class C Shares 1 Year 3 Years 5 Years 10 Years
Top 50 Europe
Expenses before reimbursements:
Assuming redemption fee $663 $1,681 $2,784 $5,477
Assuming no redemption fee $564 $1,681 $2,784 $5,477
Expenses after reimbursements:
Assuming redemption fee $338 $733 $1,255 $2,686
Assuming no redemption fee $238 $733 $1,255 $2,686
Top 50 US Expenses before reimbursements:
Assuming redemption fee $774 $1,991 $3,258 $6,230
Assuming no redemption fee $676 $1,991 $3,258 $6,230
Expenses after reimbursements:
Assuming redemption fee $328 $703 $1,205 $2,585
Assuming no redemption fee $228 $703 $1,205 $2,585
European Mid-Cap Fund
Expenses before reimbursements:
Assuming redemption fee $598 $1,494 $2,491 $4,985
Assuming no redemption fee $498 $1,494 $2,491 $4,985
Expenses after reimbursements:
Assuming redemption fee $341 $733 $1,255 $2,686
Assuming no redemption fee $238 $733 $1,255 $2,686
- --------------------------------------------------------------------------------
<PAGE>
CLASS Y SHARES
This table describes the fees and expenses of the Institutional US Money Market
Fund including those of the corresponding Portfolio that you may pay if you buy
and hold Class Y Shares of the Institutional US Money Market Fund.
<TABLE>
<CAPTION>
<S> <C>
Institutional
Shareholder Fees US Money
(Fees Paid Directly From Your Investment) Market Fund
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering None
price)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase None
price or redemption proceeds, as applicable)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None
Distributions)
(as a percentage of reinvestment price)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if applicable) None
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Exchange Fee None
- -----------------------------------------------------------------------------------------------
Institutional
Annual Fund Operating Expenses US Money
Expenses That are Deducted From Fund Assets (as a percentage of average net Market Fund
assets)
Management Fee 0.15%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees None
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Other Expenses 0.67%
===============================================================================================
Total Annual Fund Operating Expenses 0.82%
(before reimbursements)
===============================================================================================
- -----------------------------------------------------------------------------------------------
Total Reimbursements of Fund Expenses 0.62%
===============================================================================================
Total Actual Annual Fund Operating Expenses 0.20%
(after reimbursements)(1)
===============================================================================================
</TABLE>
1 The Manager has contractually agreed to waive its fees and reimburse
expenses of the Fund through August 31, 2000 to the extent necessary to
maintain the Fund's expense ratio at the level indicated as "Total Actual
Annual Fund Operating Expenses (after reimbursements)."
Example
This Example is intended to help you compare the cost of investing in the
Institutional US Money Market Fund's Class Y Shares with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in the Institutional US Money
Market Fund's Class Y Shares for the time periods indicated and then redeem all
of your Shares at the end of those periods. Expenses assuming no redemption are
also shown. The Example also assumes that your investment has a 5% return each
year and that the Class Y Shares' operating expenses remain the same during the
period. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
Class Y Shares 1 Year 3 Years 5 Years 10 Years
Institutional US Money Market Fund
Expenses before reimbursements $84 $262 $455 $1,014
Expenses after reimbursements $20 $64 $113 $255
<PAGE>
What are the Funds' Investment Strategies?
A summary of each Fund's principal investment strategy has been provided above.
The Funds also use these additional investment strategies.
Top 50 Funds
The Adviser monitors the companies it selects for the Top 50 Funds to detect
risk by analyzing possible changes in their earnings outlook and/or financial
condition. In order to assess risks, the Adviser monitors the annual and interim
financial statements of a broad universe of companies, conducts sector and
industry analyses and maintains 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 Fund are domiciled or have their
primary stock market listings.
The Adviser will consider the geographic market focus of each Fund in
considering companies proposed for investment, which may cause modest
differences in style or investment approach among the respective Funds.
Top 50 World
The Adviser will allocate investments among sectors based on long-term trends,
like demographics, globalization and information technology.
Top 50 Europe
The Adviser targets companies which are well-positioned to take advantage of the
introduction of the single European currency. The Adviser focuses on stocks
which meet its high standards in terms of management quality, earnings growth
and shareholder-oriented information policies.
The advent of the European Monetary Union (EMU) has increased the importance of
the European equity markets and allowed a broader allocation of investments
among many countries rather than focusing investments in historically stable
countries. The Fund has increased its focus on European stocks and reduced its
exposure to German equity stocks.
The Fund may also select companies that have restructuring potential along with
strong value-oriented management strategies.
Top 50 Asia
Currently, a majority of the Fund's investments are in Japanese, Korean,
Taiwanese, Hong Kong and Singapore companies, although the Fund also invests in
Australian, Thai, Malaysian, Indonesian, Chinese and Indian companies. The Fund
focuses on companies that meet one or more of the following attributes:
o strong prospects for medium-term growth;
o solid market position, with favorable financial performance and indicators;
and o high quality management whose aim is toward longer-term earnings, with a
strategic view of their
companies and markets.
Top 50 US
Although the Fund invests primarily in common stocks, the Adviser may purchase
other securities with equity characteristics, including securities convertible
into common stock, and warrants. The Fund may only invest in publicly traded
securities and may participate in initial public offerings from time to time.
European Mid-Cap Fund
The Fund invests in companies with ideas and plans for new products, new
services or new markets that offer the potential for fast growth with
diversifiable risks. Many of these companies are characterized as small- to
mid-capitalization and are seeking equity capital to finance their growth.
<PAGE>
Japanese Equity Fund
The Fund invests in large- and mid-sized companies which have a clearly-defined
competitive edge based upon quality of management, product, service, balance
sheet, innovation and low costs. The target is to outperform the Tokyo Stock
Price Index (TOPIX), although there is no guarantee that it will do so.
Money Market Funds
The Fund purchases high-quality money-market instruments with remaining
maturities of no greater than 397 days and maintains an average weighted
maturity of no more than 90 days. These instruments include 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.
EQUITY Funds
Hedging
The Funds use hedging transactions to attempt to reduce specific risks. For
example, to protect the Funds against circumstances that would normally cause
the Funds' portfolio securities to decline in value, the Funds may buy or sell a
derivative contract that would normally increase in value under the same
circumstances. The Funds may also attempt to hedge by using forward contracts,
combinations of different derivatives contracts, or derivatives contracts and
securities. The Funds' ability to hedge may be limited by the costs of the
derivatives contracts. The Funds may attempt to lower the cost of hedging by
entering into transactions that provide only limited protection, including
transactions that (1) hedge only a portion of the Funds, (2) use derivatives
contracts that cover a narrow range of circumstances or (3) involve the sale of
derivatives contracts with different terms. Consequently, hedging transactions
will not eliminate risk even if they work as intended. In addition, hedging
strategies are not always successful, and could result in increased expenses and
losses to the Funds.
Temporary Defensive Investments
The Funds may temporarily depart from their principal investment strategies by
investing their assets in cash, cash items, and shorter-term, higher-quality
debt securities, money market instruments, and similar obligations, such as
repurchase agreements and reverse repurchase agreements. They may do this to
minimize potential losses, maintain liquidity to meet shareholder redemptions,
or during or in anticipation of adverse market conditions. This may cause the
Funds to give up greater investment returns to maintain the safety of principal,
that is, the original amount invested by shareholders.
<PAGE>
What are the Principal Securities in Which the Funds Invest?
The Equity Funds invest principally in securities of companies that are listed
on a stock exchange or trade on a recognized, regulated market open to the
public. Although not a principal investment strategy, each of the Top 50 Funds
and the European Mid-Cap Fund is able to invest up to 20% of their net assets in
investment grade fixed income securities (excluding bank deposits and money
market instruments), and the Japanese Equity Fund is able to invest up to 30% of
its net assets, in investment grade fixed income securities (excluding bank
deposits and money market instruments).
Following are descriptions of the different types of securities that may
comprise the principal securities of the Funds, as explained above and in each
Fund's investment strategy. For purposes of the Equity Funds' investments,
convertible bonds and bonds with warrants are considered equity securities, not
fixed income securities. The identified Funds may invest in each type of
security and its related subtypes.
Equity Securities (Equity Funds)
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Funds cannot predict the income they will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities. The
following describes the types of equity securities in which the Funds may
invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings
directly influence the value of its common stock.
Fixed Income Securities (Money Market Funds)
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Funds
may invest.
Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types
of corporate debt securities. The Funds may also purchase interests in bank
loans to companies. The credit risks of corporate debt securities vary
widely among issuers.
In addition, the credit risk of an issuer's debt security may vary based on
its priority for repayment. For example, higher ranking (senior) debt
securities have a higher priority than lower ranking (subordinated)
securities. This means that the issuer might not make payments on
subordinated securities while continuing to make payments on senior
securities. In addition, in the event of bankruptcy, holders of senior
securities may receive amounts otherwise payable to the holders of
subordinated securities.
<PAGE>
Commercial Paper (Money Market Funds)
Commercial paper is an issuer's obligation with a maturity of less than
nine months. The short maturity of commercial paper reduces both the
market and credit risks as compared to other debt securities of the
same issuer.
U.S. Treasury Securities (Money Market Funds)
U.S. Treasury securities are direct obligations of the federal government of the
United States. U.S. Treasury securities are generally regarded as having the
lowest credit risks.
Agency Securities (Money Market Funds)
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The
United States supports some GSEs with its full faith and credit. Other GSEs
receive support through federal subsidies, loans or other benefits. A few
GSEs have no explicit financial support, but are regarded as having implied
support because the federal government sponsors their activities. Agency
securities are generally regarded as having low credit risks, but not as
low as treasury securities.
Bank Instruments (Money Market Funds)
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Yankee instruments are denominated in U.S.
dollars and issued by U.S. branches of foreign banks. Eurodollar
instruments are denominated in U.S. dollars and issued by non-U.S. branches
of U.S. or foreign banks.
Foreign Securities (Equity Funds except Top 50 US)
Foreign securities are securities of issuers based outside the United States.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Foreign Currency Exchange Contracts (All Funds except Top 50 US)
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a
foreign security into U.S. dollars, the Funds may enter into spot currency
trades. In a spot trade, a Fund agrees to exchange one currency for another
at the current exchange rate. The Funds may also enter into derivative
contracts in which a foreign currency is an underlying asset in order to
hedge currency risks associated with owning assets denominated in foreign
currencies. The exchange rate for currency derivative contracts may be
higher or lower than the spot exchange rate. Use of these derivative
contracts may increase or decrease the Funds' exposure to currency risks.
Derivative Contracts (Equity Funds)
Derivative contracts are typically financial instruments that require payments
based upon changes in the values of designated (or underlying) securities,
currencies, commodities, financial indices or other assets. Some derivative
contracts (such as futures, forwards and options) require payments relating to a
future trade involving the underlying asset. Other derivative contracts (such as
swaps) require payments relating to the income or returns from the underlying
asset. Still other derivative contracts may involve warrants on the foregoing,
in which case there is an option rather than a requirement to purchase the
underlying instrument. The other party to a derivative contract is referred to
as a counterparty.
Repurchase Agreements (Money Market Funds)
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian will take possession of the securities subject to
repurchase agreements. The Adviser or custodian will monitor the value of the
underlying security each day to ensure that the value of the security always
equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
<PAGE>
Investment Ratings (Equity Funds)
The fixed income securities in which the Equity Funds invest must be rated
investment grade (in one of the four highest rating categories) by one or more
nationally recognized rating service or be of comparable quality to securities
having such ratings.
The Adviser determines whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating service. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Funds must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
Securities rated BBB have speculative characteristics.
<PAGE>
What are the Specific Risks of Investing in the Funds?
Following are descriptions of the different types of risks that an investment in
the Funds may entail, as previously summarized under "What are the Main Risks of
Investing in the Funds?"
Stock Market Risks (Equity Funds)
o The value of equity securities in the Funds' portfolios will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The
Funds' portfolios will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. Consequently, the Funds'
share prices may decline.
o The Adviser attempts to manage market risk by limiting the amount the Funds
invest in each company's equity securities. However, diversification will
not protect the Funds against widespread or prolonged declines in the stock
market.
Sector Risks (Equity Funds)
o Companies operating in the same field or area of business may be grouped
together in broad categories called sectors. Sector risk is the possibility
that a certain sector may underperform other sectors or the market as a
whole. As the Adviser allocates more of the Fund's portfolio holdings to a
particular sector, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that
sector.
Liquidity Risks (Equity Funds except Top 50 US)
o Trading opportunities are more limited for equity or fixed income
securities that are not widely held or have no or low credit ratings. This
may make it more difficult to sell or buy a security at a favorable price
or time. Consequently, the Funds may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Funds'
performance. Infrequent trading of securities may also lead to an increase
in their price volatility.
o Liquidity risk also refers to the possibility that the Funds may not be
able to sell a security or close out a derivative contract when they want
to. If this happens, the Funds will be required to continue to hold the
security or keep the position open, and the Funds could incur losses.
Currency Risks (Equity Funds except Top 50 US)
o Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets
more volatile than securities traded exclusively in the U.S.
o With the advent of the Euro, the new single currency of the European
Monetary Union (EMU), the participating countries in the EMU can no longer
follow independent monetary policies. This may limit these countries'
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.
o Currently, currency risks may be higher for Top 50 Asia. European Mid-Cap
Fund does not attempt to manage currency risk through hedging. This may, or
may not, impact the valuation changes in the portfolios' securities.
Risks of Investing in Specific Countries and Regions (Equity Funds except Top 50
US)
o Certain of the Funds invest a significant portion of their assets in
specific regions or countries, and therefore are exposed to the risks
associated with that region or country and could be subject to greater risk
due to unanticipated and negative economic events and/or market action in
such countries or regions. For example, Top 50 Europe and European Mid-Cap
Fund have invested a substantial portion of their assets in Germany, and
Japanese Equity Fund has invested a substantial portion of its assets in
Japan. Similarly, Top 50 Asia and Top 50 World invest in Asian countries,
which have experienced sudden and unexpected disruptions in their
governments and economies with adverse consequences for investors.
Risks of Foreign Investing (Equity Funds except Top 50 US)
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
o Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the
United States. Foreign companies may also receive less coverage than United
States companies by market analysts and the financial press. In addition,
foreign countries may lack uniform accounting, auditing and financial
reporting standards or regulatory requirements comparable to those
applicable to U.S. companies. These factors may prevent the Funds and their
Adviser from obtaining information concerning foreign companies that is as
frequent, extensive and reliable as the information available concerning
companies in the United States.
o Foreign countries may have restrictions on foreign ownership of securities
or may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
o Investments trading in foreign countries entail greater risks than in the
United States because of the differences in trading and settlement systems,
liquidity, volatility, commission rates, and regulation.
Risks of Investing in Emerging Market Countries (Equity Funds except Top 50 US
and Japanese Equity Fund)
o Securities issued or traded in emerging markets generally entail greater
risks than securities issued or traded in developed markets. For example,
their prices may be significantly more volatile than prices in developed
countries. Emerging market economies may also experience more severe
downturns (with corresponding currency devaluations) than developed
economies.
o Emerging market countries may have relatively unstable governments and may
present the risk of nationalization of businesses, expropriation,
confiscatory taxation or, in certain instances, reversion to closed market,
centrally planned economies.
Credit Risks (All Funds)
o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Funds will lose money. Credit risk is primarily a risk for the Bond Funds,
and only a risk for the Equity Funds if they invest in fixed income
securities.
o Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Funds must rely entirely upon the Adviser's credit
assessment.
o Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating
is lowered, or the security is perceived to have an increased credit risk.
An increase in the spread will cause the price of the security to decline.
o Credit risk includes the possibility that a party to a transaction
involving the Funds will fail to meet its obligations. This could cause the
Funds to lose the benefit of the transaction or prevent the Funds from
selling or buying other securities to implement their investment
strategies.
Risks Related to Company Size (European Mid-Cap Fund and Japanese Equity Fund)
o Generally, the smaller the market capitalization of a company, the fewer
the number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of its outstanding shares by the current market price per share.
o Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than companies with larger market capitalizations.
o Investing in equity securities of mid-sized companies involves risks not
typically associated with investing in comparable securities of large
companies. Assets of the Funds 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 Fund's investments can experience
unexpected sharp declines in their market prices. Therefore, investments in
the Funds may be subject to greater declines in value than shares of equity
funds investing in the equity securities of large companies.
<PAGE>
Interest Rate Risks (Money Market Funds)
o Interest rate risks apply to the Equity Funds to the extent they invest in
fixed income securities. Prices of fixed income securities rise and fall in
response to changes in the interest rate paid by similar securities.
Potential or anticipated changes in interest rates also may affect the
value of fixed income securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as
the demand for particular fixed income securities, may cause the price of
certain fixed income securities to fall while the prices of other
securities rise or remain unchanged.
o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity
of a fixed income security to changes in interest rates.
Derivative Contracts (Equity Funds)
o The Fund's ability to successfully use futures, options, warrants and
currency transactions will depend on the ability of the Adviser to predict
the direction of the market and correlation of the transactions with
changes in the value of the Fund's assets. These transactions could expose
the Funds to the effect of leverage, and thereby increase the Fund's
exposure to the market and loss than it otherwise would have had if it had
not entered into these transactions.
Year 2000 Readiness (All Funds)
o The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999 or experience other date-related problems. The Year 2000
problem may cause systems to process information incorrectly and could
disrupt businesses, such as the Funds, that rely on computers.
While it is impossible to determine in advance all of the risks to the
Funds, the Funds could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund share transactions or Fund communications.
The Funds' service providers are making changes to their computer systems
to address any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000
readiness.
o Year 2000 problems would also increase the risks of the Funds' investments.
To assess the potential effect of the Year 2000 problem, the Advisers are
reviewing information regarding the Year 2000 readiness of issuers of
securities the Funds may purchase. However, this may be difficult with
certain issuers. For example, funds dealing with foreign service providers
or investing in foreign securities may find it more difficult to determine
the Year 2000 readiness of those entities. This is especially true of
entities or issuers in emerging markets. The financial impact of these
issues for the Funds is still being determined. There can be no assurance
that potential Year 2000 problems would not have a material adverse effect
on the Funds.
<PAGE>
What Do Shares Cost?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. The Federal Reserve Bank also must be open to transact Shares in
the Money Market Funds. Each of the Funds (other than the Institutional US Money
Market Fund) offers Class A Shares and Class B Shares. Top 50 Europe, Top 50 US,
and European Mid-Cap Fund also offer Class C Shares. The Institutional US Money
Market Fund offers Class Y Shares. Each share class represents interests in a
Fund's portfolio of securities. The differences between the share classes relate
to the timing and amount of asset-based sales charge an investor bears directly
or indirectly as a shareholder.
When the Funds receive your transaction request in proper form, it is processed
at the next calculated net asset value (NAV). Purchases and exchanges may be
subject to an applicable front-end sales charge (the public offering price), and
redemptions may be subject to a contingent deferred sales charge. The Money
Market Funds do not charge front-end sales charges.
EQUITY Funds
The value of Shares of the Equity Funds is generally determined based upon the
market value of the portfolio securities held by the underlying Portfolios.
However, the Funds' Board may determine in good faith that another method of
valuing investments is necessary to appraise their fair market value.
NAV of the Top 50 Europe, Top 50 Asia, European Mid-Cap Fund, and Japanese
Equity Fund is determined at 4:00 p.m. (U.S. Eastern time) each day the NYSE is
open. NAV of the Top 50 US is determined at the end of regular trading (normally
4:00 p.m. U.S. Eastern time) each day the NYSE is open. NAV of the Top 50 World
Fund is determined at the end of regular trading (normally 4:00 p.m. U.S.
Eastern time) each day the NYSE is open, but no earlier than the latest end of
regular trading on any European securities exchange on which the Funds'
portfolio securities may trade. With respect to those Funds that own foreign
securities that trade in foreign markets on days the NYSE is closed, the value
of the Fund's assets may change on days you cannot purchase, redeem or exchange
Shares.
Money market Funds
The Money Market Funds attempt to stabilize the NAV of their Shares at $1.00 by
valuing the portfolio securities using the amortized cost method, which
approximates market value. The Money Market Funds cannot guarantee that their
NAV will always remain at $1.00 per Share. NAV of the Money Market Funds is
determined at 3:00 p.m. (U.S.
Eastern time) each day the NYSE and the Federal Reserve Bank are open.
all Funds
The tables below summarize the minimum initial and subsequent investment
amounts, the maximum front-end sales charge that you will pay on a purchase of
Class A Shares, and the maximum contingent deferred sales charge you will pay at
the time you redeem your Shares. The minimum investment amounts may be waived or
lowered from time to time. Keep in mind that investment professionals may charge
you additional fees for their services in connection with your Share
transactions.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Maximum Sales Charge
Minimum Initial/Subsequent Front-End Sales Contingent
Shares Offered Investment Amounts1 Charge2 Deferred Sales
Charge3
Class A - Equity Funds $2,000/$100 5.50% 0.00%
Class A - US Money Market Fund $2,000/$100 None 0.00%
Class B $2,000/$100 None 5.00%
Class C $2,000/$100 None 1.00%
Class Y - Institutional US $5 million4/None None None
</TABLE>
Money Market Fund
1 The minimum initial and subsequent investment amounts for retirement plans are
$1,000 and $100, respectively. The minimum monthly and quarterly subsequent
investment amounts for Systematic Investment Programs are $100 and $250,
respectively. Investment professionals may impose higher or lower minimum
investment requirements on their customers than those imposed by the Funds.
Orders for $250,000 or more will be invested in Class A Shares instead of Class
B Shares to maximize your return and minimize the sales charges and marketing
fees. Accounts held in the name of an investment professional may be treated
differently. Class B Shares will automatically convert into Class A Shares after
seven full years from the purchase date. This conversion is a non-taxable event.
2 Front-End Sales Charge is expressed as a percentage of public offering price.
See "Sales Charge When You Purchase -- Class A Shares Only." 3 See "Sales Charge
When You Redeem." As noted in the following tables, certain Class A Shares may
be subject to contingent deferred sales charges. 4. The minimum initial
investment amount 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 Flag Investors 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 Flag Investors
Funds.
SALES CHARGE WHEN YOU PURCHASE -- CLASS A SHARES ONLY
Class A Shares - Equity Funds
<PAGE>
Sales Charge as a Sales Charge as a
Purchase Amount Percentage of Public Percentage of NAV
Offering Price
Less than $50,000 5.50% 5.82% $50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63% $250,000 but less than $500,000
2.50% 2.56% $500,000 but less than $1 million 2.00% 2.04% $1 million or greater1
0.00% 0.00% 1 A contingent deferred sales charge of 1% or .5% of the redemption
amount applies to Class A Shares redeemed within the first or second year,
respectively, of purchase under certain investment programs where an investment
professional received an advance payment on the transaction. The .5% charge only
applies to Shares purchased after January 1, 2000. See "Sales Charge When You
Redeem". The sales charge at purchase may be reduced or eliminated by:
o purchasing Shares in greater quantities to reduce the applicable sales
charge;
o combining concurrent purchases of Shares:
- - by you, your spouse, and your children under age 21;
- - of the same share class of two or more Flag Investors Funds (other than money
market funds); or - by a trustee or fiduciary for a single trust estate or a
single fiduciary account;
o accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund);
o signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Funds for more
information); or
o by exchanging from Class A Shares of the Equity Funds into Class A Shares of
any other Funds.
The sales charge will be eliminated when you purchase Shares:
o within 120 days of redeeming Shares of an equal or lesser amount;
o within 60 days of redeeming shares of an unaffiliated mutual fund that were
sold with a sales charge;
o through wrap accounts or other investment programs where you pay the
investment professional directly for services;
o through IRA Rollover accounts sponsored by Deutsche Bank Securities, Inc.,
Deutsche Bank Trust Company and its affiliates;
o through retirement and deferred compensation plans and trusts used to fund
those plans;
o through investment professionals that receive no portion of the sales
charge;
o as part of an Eligible Benefit Plan having at least 250 employees or
$1,000,000 invested in Flag Investors Funds;
o
<PAGE>
as a current or retired Trustee, Director or employee of Deutsche Bank AG or its
affiliates, current or retired Board member of a fund advised by Deutsche
Bank AG or its affiliates, and the spouse or minor children of these
individuals;
o through qualified separate accounts maintained by an insurance company;
o through trust companies and bank trust departments, including Deutsche Bank
Trust Company and its affiliates, initially investing at least $100,000 of
assets on behalf of any one of their investor clients; or
o through accounts investing $100,000 or more for a state or territory of the
U.S., its counties, cities, or instrumentalities; charitable organizations;
charitable remainder trusts; or life income pools.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor, ICC
Distributors, Inc., at the time of purchase. If the Distributor is not notified,
you will receive the reduced sales charge only on additional purchases, and not
retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
Class A Shares
A CDSC of 1% or .5% of the redemption amount applies to Class A Shares redeemed
within the first or second year, respectively, of purchase under certain
investment programs where an investment professional received an advance payment
on the transaction. You will pay theCDSC upon redemption of Class A Shares that
you purchased without an initial sales charge based on an initial investment of
$1 million or more; or as a result of a purchase with redemption proceeds from
an unaffiliated fund that was subject to a sales charge. The .5% CDSC only
applies to Shares purchased after January 1, 2000.
Class B Shares
Shares Held Up To: CDSC
1 year 5.00%
2 years 4.00%
3 years 3.00%
4 years 3.00%
5 years 2.00%
6 years 1.00%
7 years 0.00%
Class C Shares
You will pay a 1% CDSC if you redeem Shares within one year of the purchase
date.
You will not be charged a CDSC when redeeming Shares:
o purchased with reinvested dividends or capital gains;
o Shares held for more than six full years from the date of purchase with
respect to Class B Shares, two full years from the date of purchase with
respect to Class A Shares, and one full year from the date of purchase with
respect to Class C Shares;
o that you exchanged into the same share class of another Flag Investors Fund
where the shares were held for the applicable CDSC holding period;
o purchased through investment professionals who did not receive advanced
sales payments;
o if, after you purchase Shares, you become disabled as defined by the IRS;
or
o
<PAGE>
as a Director/Trustee or employee of the Funds/Portfolios, the Adviser, the
Distributor and their affiliates, and the spouse or children under age 21 of
these individuals.
In addition, you will not be charged a CDSC:
o if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
o if your redemption is a required retirement plan distribution;
o when you exchange your Shares for the same class of Shares of another Flag
Investors Fund;
o upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Funds redeem your Shares in
this order:
o Shares that are not subject to a CDSC; and
o Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Flag Investors Funds
that have been exchanged for Shares of the Fund).
The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower. If you are redeeming Shares acquired in an
exchange, the purchase price relates back to the Shares initially acquired in
the exchange.
<PAGE>
How are the Funds Sold?
As noted above, each Fund offers one or more classes of Shares that bear
different sales charges and levels of expenses. Class A Shares are subject to a
front-end sales charge that reduces the amount of your purchase price that is
invested on your behalf. Class B Shares and Class C Shares do not impose
front-end sales charges, so that your entire purchase price is invested on your
behalf. However, Class B Shares and Class C Shares have higher expense ratios
and pay lower dividends than Class A Shares, and redemptions of those Shares may
be reduced by a contingent deferred sales charge if you did not hold them for
the required amount of time. Class B Shares will convert on a tax-free basis to
Class A Shares after seven full years. The decision of which share class to
purchase should be based on your purchase amount, your investment horizon, and
other personal factors. However, orders for $250,000 or more will be invested in
Class A Shares instead of Class B Shares to maximize your return and minimize
the sales charges and marketing fees. Accounts held in the name of an investment
professional may be treated differently.
The Funds' Distributor markets the Shares described in this prospectus to
individuals, directly or through investment professionals.
When the Distributor receives sales charges and marketing fees, it may pay some
or all of them to investment professionals. The Distributor and its affiliates
may pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares.
RULE 12B-1 PLAN
The Funds have adopted a Rule 12b-1 Distribution and Service Plan, which allows
them to pay marketing fees to the Distributor and investment professionals for
the sale, distribution and customer servicing of Class A Shares, Class B Shares
and Class C Shares. Because Class B Shares and Class C Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Funds. The Funds reserve the right to reject any request to purchase Shares.
Where a Fund offers more than one share class and you do not specify the class
choice on your New Account Form or form of payment (e.g., Federal Reserve wire
or check) you will be contacted by the Fund. If the Fund is not successful in
contacting you, you will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order for Shares to the investment professional as
follows:
o When investing through a registered broker/dealer:
- - All Equity Funds (other than Top 50 World and Top 50 US Fund): You will
receive that day's NAV if the broker/dealer receives your order by 4:00
p.m. (US Eastern time) and then forwards your order to the Funds before
5:00 p.m. (U.S. Eastern time) and the Funds receive your payment within
three business days.
- Top 50 US: You will receive that day's NAV if the broker/dealer
receives and forwards your order to the Fund before 4:00 p.m. (U.S.
Eastern time) and the Fund receives your payment within three business
days. -
<PAGE>
Top 50 World Fund: You will receive that day's NAV if the broker/dealer or
other investment professional receives and forwards your order to the
Funds by the later of: (a) the close of regular trading on the NYSE
(normally 4:00 p.m. U.S. Eastern time); or (b) the latest close of
regular trading on any European securities exchange on which the
Funds' portfolio securities may trade.
o When investing through other investment professionals:
- All Equity Funds (other than Top 50 World Fund): You will receive that
day's NAV if the investment professional receives and forwards your
order to the Funds before 4:00 p.m. (U.S. Eastern time) and the Funds
receive your payment within three business days. - Top 50 World Fund:
You will receive that day's NAV if the broker/dealer or other
investment professional receives and forwards your order to the Funds
by the later of: (a) the close of regular trading on the NYSE
(normally 4:00 p.m. U.S. Eastern time); or (b) the latest close of
regular trading on any European securities exchange on which the
Funds' portfolio securities may trade.
o Money Market Funds: You will receive that day's NAV if the
broker/dealer or other investment professionals receives and forwards
your order to the Funds before 3:00 p.m. (U.S. Eastern time). You will
receive that day's dividend if you pay by wire (as described below) by
4:00 p.m. (U.S. Eastern time) that day. If you pay by check, you begin
earning dividends when your check is converted into federal funds
(normally the business day after the Fund receives your check).
You will become the owner of Shares and receive dividends when the Funds receive
your payment. Investment professionals should send payments according to the
instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUNDs
o Establish your account with a Fund by submitting a completed New
Account Form; and
o Send your payment to a Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Funds receive your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
Shares will be priced at the next calculated NAV after the Funds receive your
wire or your check. You begin earning dividends on the Money Market Funds on the
same day your order is received by the Fund if you pay by wire by 4:00 p.m.
(U.S. Eastern time) that day. If you pay by check, you begin earning dividends
when your check is converted into federal funds (normally the business day after
the Fund receives your check).
An institution may establish an account and place an order by calling the Funds.
An institution will become a shareholder of the Fund after the Fund receives the
order.
By Wire
Once your account has been established, you may send your wire to:
Investors Bank & Trust
Boston, MA
[Dollar Amount of Wire]
ABA Number 011001438
BNF Account Number 570000307
[For Credit to:] (Fund Name)(Fund Class)
(Fund Number, you can find this number on your account statement or by
contacting the Fund) Account Number Trade Date and Order Number Group
Number/Dealer Number Nominee/Institution Name
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
<PAGE>
By Check
Make your check payable to the name of the Fund, note the class of shares and
your account number on the check, and mail it to:
Flag Investors Funds, Inc.
P.O. Box 8612
Boston, MA 02266-8612
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Flag Investors Funds, Inc.
c/o Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Funds will
not accept third-party checks (checks originally payable to someone other than
you or Flag Investors Funds, Inc.). Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received) and Shares begin earning dividends the next day.
BY Automatic Investments
You may establish an account with your financial institution to automatically
purchase Shares on pre-determined dates or when your bank account reaches a
certain level. Under this program, participating financial institutions are
responsible for prompt transmission of orders and may charge you for this
service. You should read this prospectus along with your financial institution's
agreement or materials describing this service.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
By phone
Once you establish an account, you may make additional investments by phone for
future Share purchases if you have an account with a bank that is an ACH member.
To apply, call the Funds for an authorization form. You may use this privilege
to purchase Shares approximately two weeks from the date you file the form with
the Funds' transfer agent, Federated Shareholder Services Company.
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same share class of another
Flag Investors Fund. You must meet the minimum investment requirements for
purchasing Shares and both accounts must have identical registrations. In
certain cases, exchanges among Class A Shares of the Funds may be subject to
applicable front-end sales charges. See "How to Redeem and Exchange Shares --
Exchange Privileges."
BY SYSTEMATIC INVESTMENT PROGRAM (Except Class B Shares of the US Money Market
Fund and Class Y Shares of the Institutional US Money Market Fund) Once you have
opened an account, you may automatically purchase additional Shares on a regular
basis in a minimum monthly amount of $100 or a minimum quarterly amount of $250
by completing the Systematic Investment Program section of the New Account Form
or by contacting the Fund or your investment professional.
RETIREMENT INVESTMENTS (Except Class Y Shares)
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Funds for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
<PAGE>
How to Redeem and Exchange Shares You may redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o directly from the Fund if you purchased Shares directly from the Fund.
The following describes the deadline by which your redemption or exchange order
must be made to be priced at that day's NAV. Class Y Shares have no exchange
privileges. Your broker/dealer or other investment professional is responsible
for promptly submitting your requests and providing proper written instructions
to the Funds. Your investment professional may charge you separate fees and
commissions. Your redemption proceeds are reduced by any applicable contingent
deferred sales charge.
o Top 50 Funds (other than Top 50 World Fund): You will receive that day's NAV
if your broker/dealer or other financial intermediary receives and forwards
your order to the Funds before the close of regular trading on the NYSE
(generally 4:00 p.m. U.S. Eastern time).
o Top 50 World Fund: You will receive that day's NAV if your broker/dealer or
other financial intermediary receives and forwards your order to the Funds
by the later of: (a) the close of regular trading on the NYSE (generally
4:00 p.m. U.S. Eastern time); or (b) the latest close of regular trading on
any European securities exchange on which the Funds' portfolio securities
may trade.
o European Mid-Cap Fund and Japanese Equity Fund: You will receive that day's
NAV if your broker/dealer receives your order before 4:00 p.m. U.S. Eastern
time and forwards your order to the Funds by 5:00 p.m. U.S. Eastern time.
In the case of other financial intermediaries, they must forward your order
to the Funds before 4:00 p.m. U.S. Eastern time to receive that day's NAV.
o Money Market Funds: You will receive that day's NAV if your broker/dealer
or other financial intermediary receives and forwards your order to the
Funds before 3:00 p.m. (U.S. Eastern time) that day. If you want your
redemption proceeds wired or exchanged the same day, the Fund must receive
your redemption or exchange order by 2:00 p.m. (U.S. Eastern time). You
will not earn that day's dividends if your redemption proceeds are wired or
exchanged that day. The minimum amount for wire transfers is $1,000.
By Telephone
You may redeem or exchange Shares by calling the Funds once you have completed
the appropriate authorization form for telephone transactions. You may exchange
Shares between the same class of shares of any two Funds by telephone only if
the Funds have identical shareholder registrations. If you hold share
certificates, they cannot be exchanged by telephone.
By Mail
You may redeem or exchange Shares by mailing a written request to the Funds.
You will receive a redemption amount for Equity Funds based on the next
calculated NAV after the Funds receive your written request in proper form.
Your redemption request for the Money Market Funds will be processed on the day
the Funds receive your written request in proper form. Dividends are paid up to
and including the day that a redemption request is processed.
Send requests by mail to:
Flag Investors Funds, Inc.
c/o Federated Shareholder Services Company
P.O. Box 8612
Boston, MA 02266-8612
<PAGE>
Send requests by private courier or overnight delivery service to:
Flag Investors Funds, Inc.
c/o Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed or exchanged;
o signatures of all shareholders exactly as registered; and
o if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Funds if you need special instructions.
Signature Guarantees
Signatures must be guaranteed if:
o your redemption will be sent to an address other than the address of record; o
your redemption will be sent to an address of record that was changed within the
last 30 days; o a redemption is payable to someone other than the shareholder(s)
of record; or o if exchanging (transferring) into another fund with a different
shareholder registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker/dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
We will mail your redemption proceeds by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form. These payment options require a signature guarantee if
they were not established when the account was opened:
o an electronic transfer to your account at a financial institution that is an
ACH member; or o wire payment to your account at a domestic commercial bank that
is a Federal Reserve System member.
Payments will be wired the business day following a holiday or when wire
transfers are restricted. Wire transfers of less than $5,000 may be subject
to additional fees.
Redemption in Kind
Although each Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
o to allow your purchase to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the
Funds' ability to manage its assets.
You will not accrue interest or dividends on uncashed redemption checks from a
Fund if those checks are undeliverable and returned to the Fund.
<PAGE>
EXCHANGE PRIVILEGES
You may exchange Shares of the Funds into Shares of the same class of other Flag
Investors Funds. To do this, you must:
o ensure that the account registrations are identical; o meet any minimum
initial investment requirements; and o receive a prospectus for the fund into
which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
Class A Shares
If you exchange between Funds with different sales charges, the exchange will be
made at NAV. If you paid a sales charge once (including Shares acquired through
reinvestment of dividends and capital gains) you will not have to pay the sales
charge again upon the exchange. This is true even if you exchange out of a Fund
with a sales charge (Equity Fund), then into a Fund without a sales charge (US
Money Market Fund), and back into a Fund with a sales charge (Equity Fund).
However, if you purchased into a Fund without a sales charge (US Money Market
Fund), and exchange back into a Fund with a sales charge (Equity Fund), you will
be assessed the applicable sales charge when you make the exchange. However, no
sales charge will be assessed on Shares that you acquired through reinvestment
of dividends and distributions.
Class B Shares and Class C Shares
Exchanges may be made between the same classes of Shares at NAV without any
sales charge at the time of exchanges. The time you held the original Shares
will be added to the time you held the exchanged-for Shares for purposes of
calculating any applicable CDSC when you redeem those Shares.
The Funds may modify or terminate the exchange privilege at any time. The Funds'
Manager or Adviser may determine from the amount, frequency and pattern of
exchanges that a shareholder is engaged in excessive trading that is detrimental
to the Funds and other shareholders. If this occurs, the Funds may terminate the
availability of exchanges to that shareholder and may bar that shareholder from
purchasing other Flag Investors Funds. Shareholders will be notified in advance
of the termination of the exchange privilege.
Please contact your investment professional directly or the Distributor for
information on and prospectuses for the Flag Investors Funds into which you may
exchange your Shares free of charge.
SYSTEMATIC WITHDRAWAL PROGRAM (SWP)
You may automatically redeem Shares in a minimum amount of $100 on a regular
basis. Complete the appropriate section of the New Account Form or contact your
investment professional or the Funds. Your account value must total a minimum of
$10,000 at the time the program is established. This program may reduce, and
eventually deplete, your account. Payments should not be considered yield or
income. Generally, it is not advisable to continue to purchase Class A Shares,
which are subject to a sales charge, while redeeming Shares using this program.
A CDSC may be imposed on redemptions of Class B Shares and Class C Shares. You
will not be charged a CDSC on SWP redemptions if you reinvest all dividends and
capital gains distributions.
ADDITIONAL CONDITIONS
Telephone Transactions
The Funds will record your telephone instructions. If the Funds do not follow
reasonable procedures, they may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Funds may terminate or modify telephone
privileges at any time.
Share Certificates
The Funds do not issue Share certificates unless you make a request in writing
to the Funds' transfer agent, Federated Shareholder Services Company. The Funds
do not issue certificates for fractional Shares. If you are redeeming or
exchanging Shares represented by certificates previously issued by the Fund, you
must return the certificates with your written redemption or exchange request.
For your protection, send your certificates by registered or certified mail, but
do not endorse them.
<PAGE>
Account and Share Information
ACCOUNT STATEMENTS and confirmations
You will receive periodic statements from the Funds reporting all account
activity, including dividends and capital gains paid. In addition, you will
receive confirmation of purchases and redemptions.
DIVIDENDS AND CAPITAL GAINS
Equity Funds
The Equity Funds declare and pay any dividends annually to shareholders.
Dividends are paid to all shareholders invested in the Funds on the record date.
The record date is the date on which a shareholder must officially own Shares in
order to earn a dividend.
In addition, the Funds pay any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before a Fund declares a dividend or
capital gain. Contact your investment professional or the Funds for information
concerning when dividends and capital gains will be paid.
Money Market Funds
The Funds declare any dividends daily and pay them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through and including the day your redemption request is received
unless your redemption is paid that day by wire or ACH transactions.
The Funds do not expect to realize any capital gains or losses. If capital gains
or losses were to occur, they could result in an increase or decrease in
dividends. The Funds pay any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Funds send an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Funds. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time a Fund holds
its assets.
Fund distributions are expected to be primarily capital gains by the Equity
Funds and primarily dividends by the Money Market Funds. Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
<PAGE>
Who Manages the Funds?
A Board of Directors governs the Funds, and a Board of Trustees governs the
Portfolios. The Board of Trustees selects the Manager, Deutsche Fund Management,
Inc. (DFM). The Manager is responsible for managing the Portfolios' assets,
including buying and selling portfolio securities. However, the Manager has
delegated daily management of the Portfolios' assets to the Advisers, who are
paid by the Manager and not by the Portfolios. The Manager and Advisers are
registered investment advisers. The Adviser of each Portfolio, other than the
Top 50 US Portfolio and the US Money Market Portfolio, is DWS International
Portfolio Management GmbH (DWS). The Adviser of the Top 50 US Portfolio and the
US Money Market Portfolio is Deutsche Bank Investment Management Inc. (DBIM).
The address for the Manager and DBIM is 280 Park Avenue, New York, NY 10017. The
address for DWS is Grueneburgweg 113-115, 60323 Frankfurt am Main, Germany.
A Fund may withdraw its investment from its corresponding Portfolio at any time
if the Funds' Board of Directors determines that it is in the Fund's best
interests to do so. The Board would determine what action should be taken to
manage the Fund's investments, including investing of all the Fund's assets in
another investment company having the same investment objective and restrictions
as the Fund or retaining an investment adviser to directly manage the Fund's
assets in accordance with its investment objective and policies.
The Manager 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.
The Advisers are also subsidiaries of Deutsche Bank AG. With total assets the
equivalent of $___ billion and ___ employees as of June 30, 1999, Deutsche Bank
AG is one of Europe's largest universal banks. It is engaged in a wide range of
financial services, including retail and commercial banking, investment banking
and insurance. Deutsche Bank AG and its affiliates may have commercial lending
relationships with companies whose securities may be held by a Portfolio.
DFH subsidiaries include German-based DWS Deutsche Gesellschaft fuer
Wertpapiersparen mbH (DWS) and others based in Luxembourg, Austria, Switzerland,
France, Poland and Italy. Together, DFH subsidiaries serve as manager and/or
investment adviser to more than ___ mutual funds, having aggregate assets under
management of more than the equivalent of $___ billion as of June 30, 1999. DFH,
along with its subsidiaries, employs approximately ___ 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 ___% share of the German mutual fund market
based on assets under management as of June 30, 1999. DFH and its subsidiaries
are known in the financial market as "DWS Group, Investment Group of Deutsche
Bank."
DFH subsidiaries have received widespread industry recognition in Europe. For
example, Micropal, Europe's leading fund rating organization, has accorded DWS
the following awards: 1994: best fund manager for 1-, 3-, and 5-year periods;
1995: best fund manager for 1-, 3-, and 5-year periods; 1996: best fund manager
for 3- and 5-year periods; 1997: best fund manager for 3- and 5-year periods;
[1998: insert award, if applicable]. 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 objectives defined by Micropal. Fund rankings are based on
above-average performance in Deutsche Mark (DM) terms and below-average
volatility.
On June 4, 1999, Deutsche Bank AG (Deutsche Bank) acquired Bankers Trust
Corporation. On March 11, 1999, Bankers Trust Company (Bankers Trust), a
separate subsidiary of Bankers Trust Corporation, announced that it had reached
an agreement with the United States Attorney's Office in the Southern District
of New York to resolve an investigation concerning inappropriate transfers of
unclaimed funds and related record-keeping problems that occurred between 1994
and 1996. Bankers Trust pleaded guilty to misstating entries in the bank's books
and records and agreed to pay a $63.5 million fine to state and federal
authorities. On July 26, 1999, the federal criminal proceedings were concluded
with Bankers Trust's formal sentencing. The events leading up to the guilty
pleas did not arise out of the investment advisory or mutual fund management
activities of Bankers Trust or its affiliates.
Deutsche Bank's acquisition of Bankers Trust occurred after the wrongdoing at
Bankers Trust took place. As a result of the plea, however, absent an order from
the SEC, DFM, DWS, and DBIM may not be able to continue to provide advisory
services to the Funds. The SEC has granted a temporary order under Section 9(c)
of the Investment Company Act of 1940 (1940 Act) to permit Bankers Trust and its
affiliates to continue to provide investment advisory services to registered
investment companies, and Bankers Trust, pursuant to Section 9(c) of the 1940
Act, has filed an application for a permanent order. There is no assurance that
the SEC will grant a permanent order.
Portfolio managers
Following are the portfolio managers who are primarily responsible for the
day-to-day management of the Portfolios that are the underlying investments of
the listed Funds. Unless otherwise noted in parenthesis, each portfolio manager
has served as such since the inception of the Portfolios in October 1997.
<TABLE>
<CAPTION>
<S> <C> <C>
Funds Managed Portfolio Manager Biography
- ----------------------------- ----------------------- ------------------------------------------------------------
Top 50 World Klaus Kaldemorgen Mr. Kaldemorgen has 16 years experience as an investment
Top 50 Asia manager, joining the DWS Group in 1982. Mr. Kaldemorgen is
Senior Investment Officer,
head of the global equity
team, DWS Group,
Investment Group of
Deutsche Bank, supervising
funds holding assets under
management of EUR ___
(US$___) as of June 30,
1999. Mr. Kaldemorgen also
serves as senior portfolio
manager for the Top 50
Welt and Top 50 Asien,
German registered mutual
funds with substantially
the same investment
objective, policies and
restrictions as the
corresponding Portfolios
for the Top 50 World and
Top 50 Asian Funds. He has
held this position since
the inception of these
funds in April 1996, and
January 1997,
respectively.
- ----------------------------- ----------------------- ------------------------------------------------------------
Top 50 Europe Klaus Martini Mr. Martini joined the DWS Group in 1984, where he has
(co-manager with managed European stock funds since 1988. Mr. Martini also
Elisabeth Weisenhorn) serves as senior portfolio manager for Top 50 Europa, a
German registered mutual
fund with substantially
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 EUR ___
(US$___) as of June 30,
1999.
- ----------------------------- ----------------------- ------------------------------------------------------------
Top 50 Europe Elisabeth Weisenhorn Ms. Weisenhorn has 13 years of experience as an investment
European Mid-Cap Fund manager and joined the DWS Group in 1985. She is Senior
Investment Officer, head
of the German equity team,
supervising funds holding
assets under management of
EUR ___ (US$___) as of
June 30, 1999. Ms.
Weisenhorn is based at DWS
Group's office in
Frankfurt, Germany.
- ----------------------------- ----------------------- ------------------------------------------------------------
Top 50 US Leo Grohowski Mr. Grohowski has been a managing director and the chief
investment officer for DBIM since October 14, 1999. Mr.
Grohowski joined Bankers Trust in 1996, where he has
(since October 1999) served as the managing director and head of Investment
Management for the Trust and Investment Advisory Group. He
(senior portfolio is chief investment officer of Bankers Trust Private
manager) Banking and head of Active Equities for Deutsche Asset
Management Americas,
supervising funds holding
assets under management of
US$____ as of June 30,
1999. Mr. Grohowski was
chief investment officer
and managing director of
equity investments for
HSBC Asset Management
Americas from 1988 to
1996.
- ----------------------------- ----------------------- ------------------------------------------------------------
<PAGE>
- ----------------------------- ----------------------- ------------------------------------------------------------
Top 50 US Owen Fitzpartick Mr. Fitzpatrick has been a director of DBIM since
(since October 1999) September 28, 1999. Mr. Fitzpatrick has 13 years
-------
(portfolio manager) experience in investment management, joining Bankers Trust
in 1995. He is a director and portfolio manager for
Bankers Trust Private Banking and co-head of the Equity
Strategy Group, supervising funds holding assets under
management of US$____ as of June 30, 1999. Mr.
Fitzpatrick was a portfolio manager and research analyst
for Princeton Bank & Trust Company from 1991 to 1995. Mr.
Fitzpatrick is a Chartered Financial Analyst.
- ----------------------------- ----------------------- ------------------------------------------------------------
Japanese Equity Fund Lilian Haag Ms. Haag joined the DWS Group in January 1999, where she
(since April 1999) specializes in Japanese equities. She manages funds
-----
holding assets under
management of EUR ___
(US$___) as of June 30,
1999. Ms. Haag was
involved in Japanese
equity sales for Nomura
Bank from 1997 to 1998,
and for Yamaichi Bank from
1996 to 1997. Prior to
this, she studied at the
University of Heidelberg,
where she received a
degree in economics and
Japanese studies.
- ----------------------------- ----------------------- ------------------------------------------------------------
</TABLE>
Management and Advisory Fees
The Manager receives an annual fee based on the average daily net assets of the
underlying Portfolios in which the following Funds invest: 0.15% on the Money
Market Funds; 0.85% on Top 50 US, European Mid-Cap Fund, and Japanese Equity
Funds; and 1.00% on all the other Equity Funds. The Manager pays the Advisers a
portion of this fee. The Manager has agreed to waive its fee and reimburse the
Funds and Portfolios in order to maintain each Fund's total operating expenses
(other than extraordinary expenses) at not more than the following percentages
of average annual net assets of the Funds and Classes through August 31, 2000:
1.60% for Class A Shares of all Equity Funds except Top 50 US; 1.50% for Class A
Shares of Top 50 US; 0.55% for Class A Shares of US Money Market Fund; 2.35% for
Class B Shares of all Equity Funds except Top 50 US; 2.25% for Class B Shares of
Top 50 US; 1.30% for Class B Shares of US Money Market Fund; 2.35% for Class C
Shares of Top 50 Europe and European Mid-Cap Fund; 2.25% for Class C Shares of
Top 50 US; and 0.20% for Class Y Shares of US Institutional Money Market Fund.
Historical Performance of Corresponding DWS Fund
The European Mid-Cap Fund invests in an underlying Portfolio, the Provesta
Portfolio. This underlying Portfolio (and therefore the European Mid-Cap Fund)
is designed to produce investment results substantially the same as Provesta,
which is a German-registered mutual fund and will be referred to as the "DWS
Fund." The Provesta Portfolio seeks to accomplish this by duplicating to the
extent practical the portfolio holdings and transactions of the DWS Fund. The
Adviser manages the investment operations of the underlying 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 counterpart DWS Fund. Also, the investment
objectives, policies and restrictions of the DWS Fund are the same as those of
its counterpart Provesta Portfolio except as noted below.
Information about the performance of the European Mid-Cap Fund and the
counterpart DWS Fund is set forth below. Despite the similarity in investment
objectives, policies and restrictions, investment staff and portfolio managers,
the DWS Fund is a separate fund and you should not assume that the European
Mid-Cap Fund will have the same future performance as its counterpart DWS Fund.
The DWS Fund operates under the German regulatory and tax framework. The Fund
and its underlying Portfolio operate under the U.S. regulatory and tax
framework. Each has different diversification requirements, specific tax
restrictions and investment limitations. Since the historical performance of the
DWS Fund would not have been materially affected by the differences in the
regulation of mutual funds 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 Fund and
itscounterpart Portfolio going forward. Investors should note that the past
performance of the DWS Fund is not predictive of the future performance of the
European Mid-Cap Fund or its underlying Portfolio.
The following tables show the total return for the Class A Shares of the
European Mid-Cap Fund for the period from the commencement of operations on
October 17, 1997 to August 31, 1999, and for the one-year period ended August
31, 1999. The Fund and its underlying Portfolio did not have operating or
performance history prior to that time.
Below the Fund's performance within the same table are the average annualized
total returns for the counterpart DWS Fund for the one-, three-, five- and
ten-year periods ended August 31, 1999. The performance of the Fund and its
counterpart DWS Fund are accompanied by total returns for securities indices
believed by the Adviser to be suitable for performance comparisons.
These figures are unaudited and are based on the actual gross investment
performance of the DWS Fund with the adjustments indicated below. These figures
were not adjusted to reflect the expense ratios of the Fund which is higher than
the actual expenses of the DWS Fund (which bears a combined fund management and
expense fee of 0.50% per annum of net assets). Any such adjustment would reduce
the performance shown below.
EUROPEAN MID-CAP FUND AS COMPARED TO COUNTERPART PROVESTA1
Total Return for the Periods Ended August 31, 1999
Historical Performance
in U.S. Dollars (unaudited)
------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
European Mid-Cap CDAX Index MSCI Europe
Fund Without Sales Load 2 With Sales Load 3 (in U.S. Dollars) 4 (in U.S. Dollars) 5
- --------------------- ------------------------ ------------------- --------------------- --------------------
One Year % % % %
10/17/97 to 8/31/99 % % % %
Provesta 1
- ---------------------
One Year % % % %
Three Years % % % %
Five Years % % % %
Ten Years % % % %
- --------------------- ------------------------ ------------------- --------------------- --------------------
</TABLE>
1 Net Assets as of 8/31/99 were DM ___ million (US$__ 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 "What Do Shares Cost?"
3 Adjusted to reflect deduction for the maximum sales charge of 5.50%
applicable to Class A Shares.
4 The DAX Composite Index (CDAX) is a total rate of return index of all
domestic stocks traded on the Frankfurt Stock Exchange. It is a broad-based
index consisting of 16 industry groups. CDAX is a registered trademark of
Deutsche Borse AG.
5 The Morgan Stanley Capital Market Europe Index (MSCI Europe) is an
unmanaged, capitalization-weighted securities index which represents 60% of
the market capitalization of 13 European countries. 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 DWS Fund 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 Fund (but the effect of corporate income taxes incurred by the
counterpart DWS Fund 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.
It is not expected that there will be any material differences in the securities
held by the underlying Provesta Portfolio and its counterpart DWS Fund and thus
the investment characteristics of the underlying 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 counterpart DWS
Fund. Consequently, there is no regulatory or tax difference between the
underlying Portfolio and its counterpart DWS Fund that would be expected to have
a material effect on the investment performance of the underlying Portfolio as
compared to its counterpart DWS Fund.
Financial Information
The Financial Highlights will help you understand the Funds' financial
performance since their inception in October 1997. Some of the information is
presented on a per Share basis. Total returns represent the rate an investor
would have earned (or lost) on an investment in the Funds, assuming reinvestment
of any dividends and capital gains.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Funds' audited financial statements, is included in the Annual
Report for the fiscal year ended August 31, 1999. The Annual Report accompanies
the Funds' Statement of Additional Information.
(THE FINANCIAL STATEMENTS WILL BE FILED BY AMENDMENT.)
<PAGE>
2
FLAG INVESTORS TOP 50 WORLD
Class A Shares and Class B Shares
FLAG INVESTORS TOP 50 EUROPE
Class A Shares, Class B Shares and Class C Shares
FLAG INVESTORS TOP 50 ASIA
Class A Shares and Class B Shares
FLAG INVESTORS TOP 50 US
Class A Shares, Class B Shares and Class C Shares
FLAG INVESTORS EUROPEAN MID-CAP FUND
Class A Shares, Class B Shares and Class C Shares
FLAG INVESTORS JAPANESE EQUITY FUND
Class A Shares and Class B Shares
FLAG INVESTORS US MONEY MARKET FUND
Class A Shares and Class B Shares
FLAG INVESTORS INSTITUTIONAL US MONEY MARKET FUND
Class Y Shares
A Statement of Additional Information (SAI) dated December 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Funds' investments is contained in the Funds' Annual and Semi-Annual Reports to
shareholders as they become available. The Annual Reports discuss market
conditions and investment strategies that significantly affected the Funds'
performance during their last fiscal year. To obtain the SAI, the Annual
Reports, Semi-Annual Reports and other information without charge, and make
inquiries, call your investment professional or the Funds at 1-888-433-6385.
You can obtain information about the Funds (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
Investment Company Act File No. 811-8227 Cusip 251545869 Cusip 251545737 Cusip
251545885 Cusip 251545851 Cusip 251545109 Cusip 251545877 Cusip 251545828 Cusip
251545208 Cusip 251545695 Cusip 251545810 Cusip 251545729 Cusip 251545778 Cusip
251545794 Cusip 251545505 Cusip 251545760 Cusip 251545786 Cusip 251545604 Cusip
251545752
G02179-13 (12/99)
Flag Investors Funds, Inc.
Statement of Additional Information
<TABLE>
<CAPTION>
<S> <C>
o Flag Investors Top 50 World o Flag Investors Top 50 US (Class A Shares and Class B Shares)
(Class A Shares, Class B Shares and Class C Shares)
o Flag Investors Top 50 Europe o Flag Investors European Mid-Cap Fund
(Class A Shares, Class B Shares and Class C Shares) (Class A Shares, Class B Shares and
Class C Shares)
o Flag Investors Top 50 Asia o Flag Investors Japanese Equity Fund
(Class A Shares and Class B Shares) (Class A Shares and Class B Shares)
</TABLE>
Money Market Funds
o Flag Investors US Money Market Fund (Class A Shares and Class B Shares)
o Flag Investors Institutional US Money Market Fund (Class Y Shares)
(Each Fund formerly named "Deutsche" rather than "Flag Investors.")
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Flag Investors Funds, Inc. (formerly
Deutsche Funds, Inc.), dated December 31, 1999. This SAI uses the same terms as
defined in the prospectus. This SAI incorporates by reference and is accompanied
by the Funds' Annual Report for the fiscal year ended August 31, 1999. You may
obtain the prospectus without charge by written request to the Funds' transfer
agent, Federated Shareholder Services Company, or by calling toll-free
1-888-433-6385.
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
DECEMBER 31, 1999
Contents
Organization
Securities in Which the Portfolios Invest
Securities Descriptions, Techniques and Risks
What Do Shares Cost?
How are the Funds Sold?
How to Redeem and Exchange Shares
Account and Share Information
Tax Information
Who Manages and Provides Services to the Funds?
How Do the Funds Measure Performance?
Financial Information
Appendices
Addresses
G02179-03 (12/99)
ICC DISTRIBUTORS, INC.
Distributor
<PAGE>
- 155 -
<PAGE>
Organization
Flag Investors Funds, Inc. (Corporation) is an open-end, management investment
company that was established as a Maryland corporation on May 22, 1997.
Corporation changed its name from Deutsche Funds, Inc. effective December 31,
1999. The Corporation's Board of Directors originally established eleven Funds
(which are referred to as Fund or Funds), each with one or more classes of
shares (which are referred to as Share or Shares). Eight Funds currently exist.
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 assets in a corresponding portfolio of Flag Investors Portfolios
Trust (renamed from Deutsche Portfolios effective December 31, 1999) through the
Hub and Spoke(R) master-feeder investment fund structure. "Hub and Spoke" is a
registered service mark of Signature Financial Group, Inc.
Flag Investors Portfolios Trust (Portfolio Trust) is an open-end, management
investment company that was organized as a trust under the laws of the State of
New York. The Portfolio Trust's Board of Trustees originally established ten
portfolios, of which seven currently exist (which are referred to as Portfolio
or Portfolios).
The chart below lists each Fund, its classes of shares and the corresponding
Portfolio in which it invests. All of the Funds and Portfolios are
non-diversified except for US Money Market Fund, Institutional US Money Market
Fund, and their corresponding Portfolio, US Money Market Portfolio (US Dollar).
<TABLE>
<CAPTION>
<S> <C>
------------------------------------------------------------------------------------
Fund Name Corresponding Portfolio
(share classes)
-------------------------------------
-----------------------------------------------
Top 50 World Top 50 World Portfolio (US Dollar)
(Class A Shares and Class B Shares)
-----------------------------------------------
------------------------------------------------------------------------------------
Top 50 Europe Top 50 Europe Portfolio (US Dollar)
(Class A Shares, Class B Shares and Class C
Shares)
-----------------------------------------------
------------------------------------------------------------------------------------
Top 50 Asia Top 50 Asia Portfolio (US Dollar)
(Class A Shares and Class B Shares)
-----------------------------------------------
------------------------------------------------------------------------------------
Top 50 US Top 50 US Portfolio (US Dollar)
(Class A Shares, Class B Shares and Class C
Shares)
-----------------------------------------------
------------------------------------------------------------------------------------
European Mid-Cap Fund Provesta Portfolio (US Dollar)
(Class A Shares, Class B Shares and Class C
Shares)
-----------------------------------------------
------------------------------------------------------------------------------------
Japanese Equity Fund Japanese Equity Portfolio (US
(Class A Shares and Class B Shares) Dollar)
-----------------------------------------------
------------------------------------------------------------------------------------
US Money Market Fund US Money Market Portfolio (US
(Class A Shares and Class B Shares) Dollar)
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Institutional US Money Market Fund US Money Market Portfolio (US
(Class Y Shares) Dollar)
------------------------------------------------------------------------------------
</TABLE>
None of the Funds has hired an investment adviser. Each Portfolio's investment
manager is Deutsche Fund Management, Inc. (DFM or Manager), a registered
investment adviser. DFM has retained the services of an affiliate to serve as
investment adviser for the Portfolios. DWS International Portfolio Management
GmbH (DWS) is the investment adviser of each Portfolio except the Top 50 US
Portfolio (US Dollar) and US Money Market Portfolio (US Dollar), for which
Deutsche Bank Investment Management Inc. (DBIM) is the investment adviser (DBIM
and DWS are individually or collectively referred to as the Adviser).
<PAGE>
Securities in Which the Portfolios Invest
Since each Fund and its corresponding Portfolio have the same investment
objectives, policies and restrictions, discussions about a Fund and its
acceptable investments also pertain to its corresponding Portfolio(s) and its
(their) acceptable investments.
Following is a table that indicates which types of securities are a:
o P = Principal investment of a Fund and its corresponding Portfolio; (shaded
in chart)
o A = Acceptable (but not principal) investment of a Fund and its
corresponding Portfolio; or
o N = Not an acceptable investment of a Fund and its corresponding Portfolio.
EQUITY FUNDS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
European Japanese
Top 50 World Top 50 Top 50 Asia Top 50 Mid-Cap Fund Equity Fund
Europe US
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Equity Securities P P P P P P
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Common Stocks P P P P P P
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Preferred Stocks A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Real Estate Investment Trusts A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Warrants A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Fixed Income Securities A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Treasury Securities A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Agency Securities A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Corporate Debt Securities A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Commercial Paper A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Demand Instruments A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Insurance Contracts A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Brady Bonds A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Mortgage Backed Securities A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Asset Backed Securities A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Zero Coupon Securities A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Bank Instruments A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Credit Enhancement A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Variable Rate Demand Instruments A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Convertible Securities A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Foreign Securities P P P A P P
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Depository Receipts A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Derivative Contracts A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Futures Contracts A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Options A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<PAGE>
EQUITY FUNDS (continued)
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
European Japanese
Top 50 World Top 50 Top 50 Asia Top 50 Mid-Cap Fund Equity Fund
Europe US
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Special Transactions
- --------------------------------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Borrowing A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Repurchase Agreements A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Reverse Repurchase Agreements A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Delayed Delivery Transactions A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Securities Lending A A A A A A
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Investing in Securities of Other A A A A A A
Investment Companies
- --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
MONEY MARKET FUNDS
- --------------------------------------- -----------------
Money Market
Funds
- --------------------------------------- -----------------
Equity Securities N
- ---------------------------------------
- --------------------------------------- -----------------
Common Stocks N
- ---------------------------------------
- --------------------------------------- -----------------
Preferred Stocks N
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Real Estate Investment Trusts N
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Warrants N
- ---------------------------------------
- --------------------------------------- -----------------
Fixed Income Securities P
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Treasury Securities A
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Agency Securities A
- ---------------------------------------
- --------------------------------------- -----------------
Corporate Debt Securities P
- ---------------------------------------
- --------------------------------------- -----------------
Commercial Paper P
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Demand Instruments A
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Insurance Contracts A
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Brady Bonds N
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Taxable Municipal Securities A
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Mortgage Backed Securities A
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Asset Backed Securities A
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Zero Coupon Securities A
- ---------------------------------------
- --------------------------------------- -----------------
Bank Instruments P
- ---------------------------------------
- --------------------------------------- -----------------
Credit Enhancement A
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Variable Rate Demand Instruments A
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Convertible Securities N
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Foreign Securities N
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Depository Receipts A
- --------------------------------------- -----------------
<PAGE>
MONEY MARKET FUNDS (continued)
- --------------------------------------- -----------------
Money Market
Funds
- --------------------------------------- -----------------
Derivative Contracts N
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Futures Contracts N
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Options N
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Special Transactions
- ---------------------------------------
- --------------------------------------- -----------------
Borrowing A
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Repurchase Agreements P
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Reverse Repurchase Agreements A
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Delayed Delivery Transactions A
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Securities Lending A
- --------------------------------------- -----------------
- --------------------------------------- -----------------
Investing in Securities of Other N
Investment Companies
- --------------------------------------- -----------------
Securities Descriptions, Techniques and Risks
The following information supplements the Prospectus disclosure regarding the
investment strategies, investments and risks of the Funds (as well as their
underlying corresponding Portfolios). Each Portfolio underlying the identified
Fund(s) may invest in the type of security and its related subtype unless
otherwise noted. The descriptions are general and may not be applicable in
certain countries in which the underlying Portfolios invest.
The Top 50 Europe Portfolio pursues its (and the Top 50 Europe's) investment
objective by investing at least 65% of its total assets in the equity securities
of issuers located in European countries, including those which are member
states of the European Union ("Member States"), those which are party to the
Convention on the European Economic Area (CEEA), Poland, Switzerland, Slovakia,
Czech Republic, and Hungary.
The Top 50 Asia Portfolio pursues its (and the Top 50 Asia's) investment
objective by investing at least 65% of its total assets in the equity securities
of issuers with a domicile or business focus in Asian countries, including
China, Hong Kong, India, Indonesia, Japan, South Korea, Malaysia, Philippines,
Singapore, Taiwan, and Thailand. A company has its business focus in Asia when
the majority of its profits or sales are made there.
The Provesta Portfolio pursues its (and the European Mid-Cap Fund's) investment
objective by investing primarily in the equity securities of issuers located in
European countries, including those which are member states of the European
Union, those which are party to the CEEA, Poland, Switzerland, Slovakia, Czech
Republic, and Hungary.
The 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.
Equity Securities (Equity Funds)
As discussed in the Funds' Prospectus, each Portfolio underlying the Equity
Funds 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.
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.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the
stock. The Portfolios may also treat such redeemable preferred stock as a
fixed income security.
<PAGE>
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies,
business trusts and companies organized outside the United States may issue
securities comparable to common or preferred stock.
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.
Real Estate Investment Trusts (REITs)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax
if they limit their operations and distribute most of their income. Such
tax requirements limit a REIT's ability to respond to changes in the
commercial real estate market.
Warrants
Warrants give the Portfolios the option to buy the issuer's equity
securities at a specified price (the exercise price) at a specified future
date (the expiration date). The Portfolios may buy the designated
securities by paying the exercise price before the expiration date.
Warrants may become worthless if the price of the stock does not rise above
the exercise price by the expiration date. This increases the market risks
of warrants as compared to the underlying security. Rights are the same as
warrants, except companies typically issue rights to existing stockholders.
Each Portfolio underlying the Equity Funds may purchase warrants in value
of up to 10% of the Portfolio's net assets. 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.
Fixed Income Securities
Demand Instruments (All Funds)
Demand instruments are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a
dealer or bank, to repurchase the security for its face value upon demand.
Each Portfolio and Fund treats demand instruments as short-term securities,
even though their stated maturity may extend beyond one year.
Insurance Contracts (All Funds)
Insurance contracts include guaranteed investment contracts, funding
agreements and annuities. Each Portfolio and Fund treats these contracts as
fixed income securities.
Brady Bonds (Equity Funds)
Brady Bonds are U.S. dollar denominated debt obligations that foreign
governments issue in exchange for commercial bank loans. The International
Monetary Fund (IMF) typically negotiates the exchange to cure or avoid a
default by restructuring the terms of the bank loans. The principal amount
of some Brady Bonds is collateralized by zero coupon U.S. Treasury
securities which have the same maturity as the Brady Bonds. However,
neither the U.S. government nor the IMF has guaranteed the repayment of any
Brady Bond.
Mortgage Backed Securities (All Funds)
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates,
maturities and other terms. Mortgages may have fixed or adjustable interest
rates. Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer
deducts its fees and expenses and passes the balance of the payments onto
the certificate holders once a month. Holders of pass-through certificates
receive a pro rata share of all payments and pre-payments from the
underlying mortgages. As a result, the holders assume all the prepayment
risks of the underlying mortgages.
Collateralized Mortgage Obligations (CMOs)
CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying
pass-through certificate among holders of different classes of mortgage
backed securities. This creates different prepayment and interest rate
risks for each CMO class.
<PAGE>
Sequential CMOs
In a sequential pay CMO, one class of CMOs receives all principal
payments and prepayments. The next class of CMOs receives all
principal payments after the first class is paid off. This process
repeats for each sequential class of CMO. As a result, each class
of sequential pay CMOs reduces the prepayment risks of subsequent
classes.
PACs, TACs and Companion Classes
More sophisticated CMOs include planned amortization classes
(PACs) and targeted amortization classes (TACs). PACs and TACs are
issued with companion classes. PACs and TACs receive principal
payments and prepayments at a specified rate. The companion
classes receive principal payments and prepayments in excess of
the specified rate. In addition, PACs will receive the companion
classes' share of principal payments, if necessary, to cover a
shortfall in the prepayment rate. This helps PACs and TACs to
control prepayment risks by increasing the risks to their
companion classes.
IOs and POs
CMOs may allocate interest payments to one class (Interest Only or
IOs) and principal payments to another class (Principal Only or
POs). POs increase in value when prepayment rates increase. In
contrast, IOs decrease in value when prepayments increase, because
the underlying mortgages generate less interest payments. However,
IOs tend to increase in value when interest rates rise (and
prepayments decrease), making IOs a useful hedge against interest
rate risks.
Floaters and Inverse Floaters
Another variant allocates interest payments between two classes of
CMOs. One class (Floaters) receives a share of interest payments
based upon a market index such as LIBOR. The other class (Inverse
Floaters) receives any remaining interest payments from the
underlying mortgages. Floater classes receive more interest (and
Inverse Floater classes receive correspondingly less interest) as
interest rates rise. This shifts prepayment and interest rate
risks from the Floater to the Inverse Floater class, reducing the
price volatility of the Floater class and increasing the price
volatility of the Inverse Floater class.
Z Classes and Residual Classes
CMOs must allocate all payments received from the underlying
mortgages to some class. To capture any unallocated payments, CMOs
generally have an accrual (Z) class. Z classes do not receive any
payments from the underlying mortgages until all other CMO classes
have been paid off. Once this happens, holders of Z class CMOs
receive all payments and prepayments. Similarly, REMICs have
residual interests that receive any mortgage payments not
allocated to another REMIC class.
The degree of increased or decreased prepayment risks depends upon the
structure of the CMOs. However, the actual returns on any type of mortgage
backed security depend upon the performance of the underlying pool of
mortgages, which no one can predict and will vary among pools.
Asset Backed Securities (All Funds)
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial
debts with maturities of less than ten years. However, almost any type of
fixed income assets (including other fixed income securities) may be used
to create an asset backed security. Asset backed securities may take the
form of commercial paper, notes, or pass through certificates. Asset backed
securities have prepayment risks. Like CMOs, asset backed securities may be
structured like Floaters, Inverse Floaters, IOs and POs.
Credit Enhancement (All Funds)
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and liquidity
than the issuer. For this reason, the Adviser usually evaluates the credit
risk of a fixed income security based solely upon its credit enhancement.
Common types of credit enhancement include guarantees, letters of credit,
bond insurance and surety bonds. Credit enhancement also includes
arrangements where securities or other liquid assets secure payment of a
fixed income security. If a default occurs, these assets may be sold and
the proceeds paid to security's holders. Either form of credit enhancement
reduces credit risks by providing another source of payment for a fixed
income security.
Listed Securities (Equity Funds)
Each Portfolio underlying the Equity Funds will invest primarily in listed
securities (Listed Securities). Listed Securities are defined as securities
meeting at least one of the following requirements: (a) they are listed on a
stock exchange in a Member State or in another state which is a party to the
CEEA, or are included on another regulated market in a Member State or in
another state party to the CEEA which market is recognized, open to the public
and operates regularly; (b)they are admitted to the official listing on one of
the stock exchanges listed in Appendix B or included on one of the regulated
markets listed in Appendix B; 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 (Equity Funds)
Up to a total of 10% of the net assets of each Portfolio underlying the Equity
Funds may be invested in:
(a) securities that are consistent with the Portfolio's investment objective
and policies, which are not admitted to official listing on one of the
stock exchanges or included on one of the regulated markets, described
above;
(b) interests in loans which are portions of an overall loan granted by a third
party and for which a note has been issued (Notes), provided these Notes
can be assigned at least twice after purchase by the Portfolio, and the
Note was issued by:
o the Federal Republic of Germany (Germany), a special purpose fund of
Germany, a state of Germany, the European Union or a member state of
the Organization for Economic Cooperation and Development (an OECD
Member),
o 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),
o other corporate bodies or institutions organized under public law and
registered domestically in Germany or in another Member State or
another state party to the CEEA,
o other debtors, if guaranteed as to the payment of interest and repayment of
principal by one of the
aforementioned bodies, or
o companies which have issued securities which are admitted to official
listing on a German or other foreign stock exchange.
Investments in Notes are subject to each Portfolio's overall limitation on fixed
income securities (30% for the Portfolio underlying the Japanese Equity Fund and
20% for all other Portfolios underlying the Equity Funds).
The current Member States, the states party to the CEEA, and OECD Members are
listed in Appendix B.
Convertible Securities (Equity Funds)
Convertible securities are fixed income securities (and may include preferred
stock) that the Portfolios underlying the Equity Funds have the option to
exchange for equity securities at a specified conversion price. The option
allows the Portfolios to realize additional returns if the market price of the
equity securities exceeds the conversion price. For example, the Portfolios may
hold fixed income securities that are convertible into shares of common stock at
a conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Portfolios could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Portfolios to realize some of the potential appreciation of the underlying
equity securities with less risk of losing their initial investment.
Foreign Securities (Equity Funds except Top 50 US)
Foreign securities are securities of issuers based outside the United States.
The Portfolios underlying the Equity Funds (except Top 50 US) consider an issuer
to be based outside the United States if:
o it is organized under the laws of, or has a principal office located in,
another country; or
o the principal trading market for its securities is in another country; or
o it (or its subsidiaries) derived in its most current fiscal year at least
50% of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Each Portfolio (other than the US Money Market Portfolio) will invest primarily
in securities which are:
o listed on a stock exchange in countries that are members of the European
Union (EU), or the Convention on the European Economic Area (CEEA), or
included in another recognized, public, and regularly operating, regulated
market in these countries,
o admitted to official listing in countries that are members of the EU, the
CEEA, or the Organisation for Economic Cooperation and Development (OECD),
or
o under application for admission (within 12 months of their issue) to
official listing on one of these markets.
<PAGE>
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by
a foreign company. Depositary receipts are not traded in the same market as
the underlying security. The foreign securities underlying American
Depositary Receipts (ADRs) are traded in the United States. ADRs provide a
way to buy shares of foreign-based companies in the United States rather
than in overseas markets. ADRs are also traded in U.S. dollars, eliminating
the need for foreign exchange transactions. The foreign securities
underlying European Depositary Receipts (EDRs), Global Depositary Receipts
(GDRs), and International Depositary Receipts (IDRs), are traded globally
or outside the United States. Depositary receipts involve many of the same
risks of investing directly in foreign securities, including currency risks
and risks of foreign investing.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations
of supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and
credit. Further, foreign government securities include mortgage-related
securities issued or guaranteed by national, state or provincial
governmental instrumentalities, including quasi-governmental agencies.
Short-Term Instruments (Equity Funds)
Although it is intended that the assets of each Portfolio underlying the Equity
Funds stay invested in the equity and fixed income securities described above
and in each Fund's Prospectus to the extent practical in light of each
Portfolio's investment objective and long-term investment perspective, assets of
each Portfolio may be invested in bank deposits and money market instruments
maturing in less than 12 months to meet anticipated expenses or for day-to-day
operating purposes and when, in the Adviser's opinion, it is advisable to adopt
a temporary defensive position because of unusual and adverse conditions
affecting the equity or fixed income markets. In addition, when a Portfolio
experiences large cash inflows through additional investments by its investors
or the sale of portfolio securities, and desirable securities that are
consistent with its investment objective are unavailable in sufficient
quantities, assets may be held in short-term investments for a limited time
pending availability of such securities. Bank deposits and money market
instruments include credit balances and bank certificates of deposit, discounted
treasury notes and bills issued by the Federal Republic of Germany ("Germany"),
the states of Germany, the European Union, other member states of the
Organization for Economic Cooperation and Development ("OECD") or
quasi-government entities of any of the foregoing. To the extent a Portfolio
engages in short-term trading, it may realize short-term capital gains or losses
and incur increased transaction costs.
Derivative Contracts (Equity Funds)
Many derivative contracts are traded on securities or commodities exchanges.
Derivative contracts bought and sold by the Portfolios underlying the Equity
Funds must be admitted to official listing on a recognized futures or securities
exchange. These exchanges set all the terms of the contract except for the
price. Investors make payments due under their contracts through the exchange.
Most exchanges require investors to maintain margin accounts through their
brokers to cover their potential obligations to the exchange. Parties to the
contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to close out their contracts by entering into offsetting
contracts. In the case of Top 50 US, contracts may also be purchased or sold by
securities dealers that meet certain creditworthiness standards
(over-the-counter options). These options place greater reliance on the dealer
to fulfill the terms of the options, and therefore entail greater risk to the
Portfolio.
For example, a Portfolio could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Portfolio realizes a gain; if it is less, the Portfolio realizes a
loss. Exchanges may limit the amount of open contracts permitted at any one
time. Such limits may prevent the Portfolio from closing out a position. If this
happens, the Portfolio will be required to keep the contract open (even if it is
losing money on the contract), and to make any payments required under the
contract (even if it has to sell portfolio securities at unfavorable prices to
do so). Inability to close out a contract could also harm the Portfolio by
preventing it from disposing of or trading any assets it has been using to
secure its obligations under the contract.
Depending upon how the Portfolios use derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Portfolios' exposure to market
and currency risks, and may also expose the Portfolios to liquidity and leverage
risks.
The Portfolios may use derivative contracts for hedging risk management purposes
or for obtaining exposure to certain securities or markets. In addition, these
Portfolios (other than Top 50 US Portfolio) may enter into derivative
transactions for non-hedging
<PAGE>
purposes subject to certain percentage limits and only to the extent that they
relate to categories of assets which the Portfolio is permitted to hold. Top 50
US Portfolio does not have the limitation on its derivatives contracts.
Zero Coupon Securities (All Funds)
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security. A zero coupon
step-up security converts to a coupon security before final maturity.
There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are
the most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in place
of cash interest payments, thereby increasing the amount payable at maturity.
These are referred to as pay-in-kind or PIK securities. 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 (Equity Funds)
Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.
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. Call options on securities may be sold (written) only if the
securities underlying the option transaction are held by a Portfolio at the time
of the sale. These securities may not be sold during the maturity of the call
option and may not be the subject of a securities loan.
The Portfolios underlying the Equity Funds also may:
o Buy call options on futures contracts and securities indices in
anticipation of an increase in the value of the underlying asset;
o Buy put options on futures contracts, securities indices, currencies, and
currency futures contracts in anticipation of a decrease in the value of
the underlying asset; and
o Buy option rights to buy or sell currencies or currency futures contracts.
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.
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All options purchased or sold by a Portfolio will be traded on a securities
exchange or, in the case of the Top 50 US Portfolio, will be purchased or sold
by securities dealers (in the case of over-the-counter, or "OTC," options) that
meet creditworthiness standards approved by the Portfolio Trust's Board of
Trustees. In the case of OTC options, the Top 50 US Portfolio relies on the
dealer from which it purchased the option to perform if the option is exercised.
Thus, when the Portfolio purchases an OTC option, it relies on the dealer from
which it purchased the option to make or take delivery of the underlying
securities. Failure by the dealer to do so would result in the loss of the
premium paid by the Portfolio as well as loss of the expected benefit of the
transaction.
The staff of the Securities and Exchange Commission ("SEC") has taken the
position that, in general, purchased OTC options and the underlying securities
used to cover written OTC options are illiquid securities. However, the Top 50
US Portfolio may treat as liquid the underlying securities used to cover written
OTC options, provided it has arrangements with certain qualified dealers who
agree that such Portfolio may repurchase any option it writes for a maximum
price to be calculated by a predetermined formula. In these cases, the OTC
option itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
Options Transactions on Securities (Equity Funds)
Options transactions may be carried out for each Portfolio underlying the Equity
Funds 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.
By purchasing a put option, a Portfolio obtains the right (but not the
obligation) to sell the instrument underlying the option at a fixed strike
price. In return for this right, the Portfolio pays the current market price for
the option (known as the option premium). The purchaser of a call option obtains
the right to purchase, rather than sell, the instrument underlying the option at
the option's strike price.
Put options on securities may be purchased only if the securities underlying the
option transaction are held by a Portfolio at the time of the purchase of the
put option.
When a Portfolio writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the premium,
the Portfolio assumes the obligation to pay the strike price for the instrument
underlying the option if the other party to the option chooses to exercise it.
Writing a call option obligates a Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option.
Call options on securities may be sold (written) only if the securities
underlying the option transaction are held by a Portfolio at the time of the
sale. These securities may not be sold during the maturity of the call option
and may not be the subject of a securities loan.
There is no limitation on the value of the options that may be purchased or
written by a Portfolio. However, the strike prices of the securities options,
together with the strike prices of the securities that underlie other securities
options already purchased or granted for the account of each Portfolio, may not
exceed 20% of net assets of the Portfolio. With respect to the Portfolio
underlying the European Mid-Cap Fund, the strike prices of options on fixed
income securities held by the Portfolio may not exceed 4% of the net assets of
the Portfolio (i.e., 20% of the 20% investment limitation on fixed income
securities). 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
(Equity Funds)
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts.
Each Portfolio underlying the Equity Funds may purchase and sell stock index
futures contracts and interest rate futures contracts and may purchase put and
call options on futures contracts, options on securities indices, options and
warrants on futures contracts and stock indices. A Portfolio will engage in
transactions in such instruments only if they are admitted to official listing
on a recognized domestic or foreign futures or securities exchange and meet
certain other requirements stated below. A
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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.
When a Portfolio underlying the Equity Funds 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.
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.
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. In addition,
with respect to the Portfolio underlying the European Mid-Cap Fund, 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).
Currency Forward Contracts, Option Rights and Warrants on Currencies and
Currency Futures Contracts (Equity Funds
except Top 50 US)
Each Portfolio underlying the Equity Funds (except the Top 50 US) 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 currency
risks associated with the assets of the Portfolio denominated in foreign
currencies or (in the case of the Portfolios underlying the European Mid-Cap
Fund and Japanese Equity Fund) principally traded in foreign currencies. The
Portfolio underlying the European Mid-Cap Fund, however, does not presently
intend to engage in such hedging activity but reserves 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. All the Portfolios (except the Portfolio underlying the
European Mid Cap Fund) 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. 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. A Portfolio may also purchase option rights for the purchase
or sale of currencies or currency futures contracts or warrants which entitle
the holder to the right to purchase or sell currencies or currency futures
contracts or to receive payment of a difference, which is measured by the
performance of currencies or currency futures contracts, provided that these
option rights and warrants are admitted to official listing on an exchange.
Each Portfolio underlying the Top 50 Funds does not currently intend to engage
in foreign currency transactions as an investment strategy. However, each of
these Portfolios (except for Top 50 US Portfolio) may enter into forward
contracts to hedge against changes in foreign currency exchange rates that would
affect the value of existing investments denominated or principally traded in a
foreign currency. Combined Positions
Each Portfolio underlying the Equity Funds 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 underlying the Equity Funds 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 on Futures Contracts
Each Portfolio underlying the Equity Funds 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.
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.
Swaps
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party,
and the parties might not own the assets underlying the swap. The payments
are usually made on a net basis so that, on any given day, the Portfolio
would receive (or pay) only the amount by which its payment under the
contract is less than (or exceeds) the amount of the other party's payment.
Swap agreements are sophisticated instruments that can take many different
forms, and are known by a variety of names including caps, floors, and
collars. Common swap agreements that the Portfolio may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make
regular payments equal to a fixed or floating interest rate times a
stated principal amount of fixed income securities, in return for
payments equal to a different fixed or floating rate times the same
principal amount, for a specific period. For example, a $10 million
LIBOR swap would require one party to pay the equivalent of the London
Interbank Offer Rate of interest (which fluctuates) on $10 million
principal amount in exchange for the right to receive the equivalent of
a stated fixed rate of interest on $10 million principal amount.
Caps and Floors
Caps and Floors are contracts in which one party agrees to make
payments only if an interest rate or index goes above (Cap) or below
(Floor) a certain level in return for a fee from the other party.
Total Return Swaps
Total return swaps are contracts in which one party agrees to make
payments of the total return from the underlying asset or currency
during the specified period, in return for payments equal to a fixed or
floating rate of interest or the total return or currency from another
underlying asset.
Borrowing (Equity Funds)
Each Portfolio underlying the Equity Funds may borrow money from banks for
temporary or short-term purposes and then only in amounts not to exceed 10% of
each Portfolio's total assets, except the Top 50 US, at the time of such
borrowing. The Portfolio underlying the Top 50 US may take up short-term loans
up to a limit of one-third of the Portfolio's total assets.
Bank Deposits and Money Market Instruments (Equity Funds)
Each Portfolio underlying the Equity Funds may invest in bank deposits and money
market instruments maturing in less than 12 months. These instruments include
credit balances and bank certificates of deposit, discounted treasury notes and
bills issued by Germany, the states of Germany, the European Union, OECD Members
or quasi-governmental entities of any of the foregoing.
Under normal circumstances each Portfolio will purchase bank deposits and money
market instruments to invest temporary cash balances or to maintain liquidity to
meet redemptions. However, each Portfolio may temporarily invest in bank
deposits and money market instruments, up to 49% of its net assets, as a measure
taken in the Adviser's judgment during, or in anticipation of, adverse market
conditions. For each Portfolio, except the Portfolio underlying the Top 50 US,
certificates of deposit from the same credit institution may not account for
more than 10% of a Portfolio's total assets.
Repurchase Agreements (All Funds)
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.
Reverse Repurchase Agreements (All Funds)
Reverse repurchase agreements may be entered into only with a "primary dealer"
(as designated by the Federal Reserve Bank of New York) in U.S. government
securities. This is an agreement in which the Portfolio agrees to repurchase
securities sold by it at a mutually agreed upon time and price. As such, it is
viewed as the borrowing of money for the Portfolio. Proceeds of borrowings under
reverse repurchase agreements are invested for the Portfolio. This is the
speculative factor known as "leverage." If interest rates rise during the term
of a reverse repurchase agreement utilized for leverage, the value of the
securities to be repurchased for the Portfolio as well as the value of
securities purchased with the proceeds will decline. In these circumstances, the
Portfolio's entering into reverse repurchase agreements may have a negative
impact on the ability to maintain the Funds' net asset value of $1.00 per share.
Proceeds of a reverse repurchase transaction are not invested for a period which
exceeds the duration of the reverse repurchase agreement. A reverse repurchase
agreement is not entered into for the Portfolio if, as a result, more than one-
third of the market value of the Portfolio's total assets, less liabilities
other than the obligations created by reverse repurchase agreements, is engaged
in reverse repurchase agreements. In the event that such agreements exceed, in
the aggregate, one-third of such market value, the amount of the Portfolio's
obligations created by reverse repurchase agreements is reduced within three
days thereafter (not including Sundays and holidays) or such longer period as
the SEC may prescribe. A segregated account with the Custodian is established
and maintained for the Portfolio with liquid assets in an amount at least equal
to the Portfolio's purchase obligations under its reverse repurchase agreements.
Such a segregated account consists of liquid, high grade debt securities marked
to the market daily, with additional liquid assets added when necessary to
insure that at all times the value of such account is equal to the purchase
obligations.
Securities Lending (All Funds)
All of the Funds may lend portfolio securities to borrowers that the Adviser
deems creditworthy. In return, the Funds receive cash or liquid securities from
the borrower as collateral. The borrower must furnish additional collateral if
the market value of the loaned securities increases. Also, the borrower must pay
the Funds the equivalent of any dividends or interest received on the loaned
securities.
The Funds will reinvest cash collateral in securities that qualify as an
acceptable investment for the Funds. However, the Funds may pay all or a portion
of the interest earned on the cash collateral to the borrower.
Loans are subject to termination at the option of the Funds or the borrower. The
Funds will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Funds may
pay administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.
Securities lending activities are subject to interest rate risks and credit
risks. These transactions create leverage risks.
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. The
Portfolio underlying the Money Market Funds may loan portfolio securities up to
30% of the total value of the Portfolio but will not make a loan in
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excess of one year. Each Portfolio underlying the Equity Funds may lend its
portfolio securities up to one-third of the value of its total assets.
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.
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.
Asset Coverage (All Funds)
In order to secure their obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless a Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions.
Investment Companies (Equity Funds)
Up to 5% of the total assets of each Portfolio underlying the Equity Funds
(except Top 50 US) 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 Fund. The Portfolio underlying
Top 50 US 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 and 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.
Special Transactions
Delayed Delivery Transactions (All Funds)
Delayed delivery transactions, including when issued transactions, are
arrangements in which an underlying Portfolio buys securities for a set
price, with payment and delivery of the securities scheduled for a future
time. During the period between purchase and settlement, no payment is made
by the Portfolio to the issuer and no interest accrues to the Portfolio.
The Portfolio records the transaction when it agrees to buy the securities
and reflects their value in determining the price of its shares. Settlement
dates may be a month or more after entering into these transactions so that
the market values of the securities bought may vary from the purchase
prices. Therefore, delayed delivery transactions create interest rate risks
for the Portfolio. These transactions may create leverage risks.
To Be Announced Securities (TBAs)
As with other delayed delivery transactions, a seller agrees to issue a
TBA security at a future date. However, the seller does not specify the
particular securities to be delivered. Instead, the Portfolio agrees to
accept any security that meets specified terms. For example, in a TBA
mortgage backed transaction, the Portfolio and the seller would agree
upon the issuer, interest rate and terms of the underlying mortgages.
The seller would not identify the specific underlying mortgages until
it issues the security. TBA mortgage backed securities increase
interest rate risks because the underlying mortgages may be less
favorable than anticipated by the Portfolio.
MONEY MARKET FUNDS
Following are descriptions of the short-term securities the Portfolio underlying
the Money Market Funds may purchase. However, other such securities not
mentioned below may be purchased for the Funds if they meet the quality and
maturity guidelines set forth in the Funds' investment policies.
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. The Portfolio may
also enter into reverse repurchase agreements.
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U.S. Government Securities
Assets of the Portfolio may be invested in securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities. These securities,
including those which are guaranteed by federal agencies or instrumentalities,
may or may not be backed by the "full faith and credit" of the United States. In
the case of securities not backed by the full faith and credit of the United
States, it may not be possible to assert a claim against the United States
itself in the event the agency or instrumentality issuing or guaranteeing the
security for ultimate repayment does not meet its commitments. Securities which
are not backed by the full faith and credit of the United States include, but
are not limited to, securities of the Tennessee Valley Authority, the Federal
National Mortgage Association (FNMA), the U.S. Postal Service and the Resolution
Funding Corporation (REFCORP), each of which has a limited right to borrow from
the U.S. Treasury to meet its obligations, and securities of the Federal Farm
Credit System, the Federal Home Loan Banks, the Federal Home Loan Mortgage
Corporation (FHLMC) and the Student Loan Marketing Association, the obligations
of each of which may be satisfied only by the individual credit of the issuing
agency. Securities which are backed by the full faith and credit of the United
States include Treasury bills, Treasury notes, Treasury bonds and pass-through
obligations of the Government National Mortgage Association (GNMA), the Farmers
Home Administration and the Export-Import Bank. There is no percentage
limitation with respect to investments in U.S. government securities.
Bank Obligations
Assets of the Portfolio may be invested in U.S. dollar-denominated negotiable
certificates of deposit, fixed time deposits and bankers' acceptances of banks,
savings associations and savings banks organized under the laws of the United
States or any state thereof, including obligations of non-U.S. branches of such
banks, or of non-U.S. banks or their U.S. or non-U.S. branches, provided that in
each case, such bank has more than $500 million in total assets, and has an
outstanding short-term debt issue rated within the highest rating category for
short-term debt obligations by at least two (unless only rated by one)
nationally recognized statistical rating organizations (e.g., Moody's and S&P)
or, if unrated, are of comparable quality as determined by or under the
direction of the Portfolio's Board of Trustees.
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 Fund); 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.
Taxable Municipal Securities
Municipal securities are issued by states, counties, cities and other political
subdivisions and authorities. Although many municipal securities are exempt from
federal income tax, the Portfolio may invest in taxable municipal securities.
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.
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.
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 and those countries
whose sovereign issuances qualify as Eligible Securities.
INVESTMENT RISKS
There are many factors which may affect an investment in a Portfolio underlying
a Fund. The principal risks of a Fund and its underlying Portfolio are described
in the prospectus. Additional information about risk factors is outlined below.
Liquidity Risks (Equity Funds)
o OTC derivative contracts are considered to be illiquid and generally carry
greater liquidity risk than exchange-traded contracts.
Foreign Investments (Equity Funds)
o Each Portfolio underlying the Equity Funds (except Top 50 US), 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.
o 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.
o 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.
o 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
Portfolios underlying the Top 50 Europe and European Mid-Cap Fund do not
presently intend to engage in currency transactions to hedge currency
risks, these Portfolios may be more exposed to the aforementioned currency
risks.
o Certain of the risks associated with foreign investments are
heightened for the Portfolios underlying Top 50 Asia and Top 50 World,
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 Portfolios
underlying Top 50 Asia or the Top 50 World is invested. The Portfolios
underlying Top 50 Asia 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.
Euro Risks (Equity Funds except Top 50 US)
o The Portfolios underlying the Equity Funds (except the Top 50 US, Top
50 Asia and Japanese Equity Funds) may make significant investments in
securities denominated in the Euro, the new single currency of the
European Monetary Union (EMU). Therefore, the exchange rate between
the Euro and the U.S. dollar will have a significant impact on the
value of these Portfolios' investments. On January 1, 1999, eleven of
the fifteen Member States had their currency exchange rate irrevocably
fixed to a single European currency, the Euro. The Euro became legal
tender in those countries on this date. National currencies will
continue to circulate until they are replaced by Euro coins and bank
notes on July 1, 2002. The unification of European currency and
decision by certain countries not to participate are likely to create
uncertainty in the European markets and thereby increase volatility of
the various currencies and securities. The European securities markets
may become less liquid. These events can adversely affect the
Portfolios' investment and performance.
Emerging Markets (Top 50 World, Top 50 Europe, Top 50 Asia, and European
Mid-Cap Fund )
o 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
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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.
o The risks involved in making investments in securities of issuers in
emerging markets have been underscored by recent events. For example,
issuers in the Asia region have experienced currency volatility, political
instability and economic declines in recent months. In response to these
declines, Malaysia has enacted currency exchange controls, restricting the
repatriation of assets for a period of one year. Last year, Russia declared
a moratorium on repayment of its own debt, substantially devalued its
currency and suspended the government- sponsored foreign exchange market
for its currency.
Currency Risks (Equity Funds except Top 50 US)
o The Adviser attempts to manage currency risk by limiting the amount the
Portfolio invests in securities denominated in a particular currency.
However, diversification will not protect the Portfolio against a general
increase in the value of the U.S. dollar relative to other currencies.
Leverage Risks (All Funds)
o Leverage risk is created when an investment exposes a Portfolio underlying
a Fund to a level of risk that exceeds the amount invested. Changes in the
value of such an investment magnify the Portfolios' risk of loss and
potential for gain.
Risk Management (Equity Funds)
Each Portfolio underlying the Equity Funds 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.
Prepayment Risks (Money Market Funds)
o Investments in mortgage-backed and asset-backed securities share many of
the same risks of prepayment.
o Unlike traditional fixed income securities, which pay a fixed rate of
interest until maturity (when the entire principal amount is due) payments
on mortgage backed securities include both interest and a partial payment
of principal. Partial payment of principal may be comprised of scheduled
principal payments as well as unscheduled payments from the voluntary
prepayment, refinancing, or foreclosure of the underlying loans. These
unscheduled prepayments of principal create risks that can adversely affect
a Portfolio holding mortgage backed securities.
For example, when interest rates decline, the values of mortgage backed
securities generally rise. However, when interest rates decline,
unscheduled prepayments can be expected to accelerate, and the Portfolio
would be required to reinvest the proceeds of the prepayments at the lower
interest rates then available. Unscheduled prepayments would also limit the
potential for capital appreciation on mortgage backed securities.
Conversely, when interest rates rise, the values of mortgage backed
securities generally fall. Since rising interest rates typically result in
decreased prepayments, this could lengthen the average lives of mortgage
backed securities, and cause their value to decline more than traditional
fixed income securities.
o Generally, mortgage backed securities compensate for the increased risk
associated with prepayments by paying a higher yield. The additional
interest paid for risk is measured by the difference between the yield of a
mortgage backed security and the yield of a U.S. Treasury security with a
comparable maturity (the spread). An increase in the spread will cause the
price of the mortgage backed security to decline. Spreads generally
increase in response to adverse economic or market conditions. Spreads may
also increase if the security is perceived to have an increased prepayment
risk or is perceived to have less market demand.
Call Risks (Money Market Funds)
o Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market
price. An increase in the likelihood of a call may reduce the security's
price.
o If a fixed income security is called, the Portfolio underlying the Money
Market Funds may have to reinvest the proceeds in other fixed income
securities with lower interest rates, higher credit risks, or other less
favorable characteristics.
Risks Associated with Complex CMOs (All Funds)
o CMOs with complex or highly variable prepayment terms, such as companion
classes, IOs, POs, Inverse Floaters and residuals, generally entail greater
market, prepayment and liquidity risks than other mortgage backed
securities. For example, their prices are more volatile and their trading
market may be more limited.
Futures, Options and Warrants (Equity Funds)
o The successful use of futures, options and warrants depends on the ability
of the Adviser of the Portfolios underlying the Equity Funds 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.
o 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.
o Although foreign currency exchange 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.
Correlation of Price Changes (Equity Funds)
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.
Shareholder Liability Risks (All Funds)
The 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
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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.
INVESTMENT OBJECTIVE AND POLICIES
The investment objectives and policies 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.
A Fund's investment objective and its fundamental investment policies cannot be
changed unless authorized by the "vote of a majority of its outstanding voting
securities," as defined by the Investment Company Act of 1940 (1940 Act). A
Fund's non-fundamental investment policies, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective. Whenever a Fund is requested to
vote on a change in the fundamental investment policies 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 otherwise noted, there will be no violation of any investment restriction
if that restriction is complied with at the time the relevant action is taken
even if there is 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.
Fundamental Investment Policies (Equity Funds)
For purposes of fundamental investment policies 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.
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 (Code)). The possible assumption
of large positions in the securities of a small number of companies may cause
the performance of a Fund to fluctuate to a greater extent than that of a
diversified investment company as a result of changes in the financial condition
or in the market's assessment of the companies.
The Top 50 World will invest at least 65% of its total assets in equity
securities. The Top 50 Europe will invest at least 65% of its total assets in
the equity securities of issuers located in European countries. The Top 50 Asia
will invest at least 65% of its total assets in the equity securities of issuers
with a domicile or business focus in Asian countries. The Top 50 US will invest
at least 65% of its total assets in the equity securities of issuers located in
the United States.
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 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.
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.
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,
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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 (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 Policies (Equity Funds)
8. 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 shall 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;
9. 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;
10. Invest more than 10% of its net assets in unlisted securities and Notes (as
defined in the Fund's prospectus);
11. 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
12. Purchase securities on margin, but a Portfolio may obtain such short term
credits as may be necessary for the clearance of transactions.
The DWS Fund is subject to regulation under the German Investment Companies Act.
Therefore, in addition to the investment policies discussed herein and in the
Prospectus, each Fund, except the Top 50 US and its corresponding Portfolio, has
adopted additional non-fundamental investment policies. These non-fundamental
investment policies require that each such Fund and its corresponding Portfolio
may not (except that the Corporation may invest all of each Fund's assets in its
corresponding Portfolio):
13. Invest more than 10% of its net assets in the securities of any one issuer
or invest more than 40% of its net assets in the aggregate in the
securities of those issuers in which the Portfolio has invested in excess
of 5% but not more than 10% of its net assets. For purposes of this
restriction, mortgage bonds and municipal bonds as well as bonds and Notes
issued by Germany, the states of Germany, a member state of the EU, a state
party to the Convention on the European Economic Area ("CEEA"), a member
state of the OECD or the EU shall be valued at half of their value. Bonds
of credit institutions situated in a member state of the EU or state party
to the CEEA shall be valued at half their value provided that the credit
institutions are by law subject to a special public supervision to protect
the holders of such bonds and provided the funds raised through the issue
of such bonds are invested in accordance with the legal provisions in
assets, which provide sufficient coverage for the ensuing liabilities
throughout the entire life of the bonds and which in case of deficiency of
the issuer are earmarked for prior redemption of principal and payment of
interest. Securities and Notes issued by companies in the same affiliated
group shall be considered securities of the same issuer (borrower);
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14. 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;
15. 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
16. Borrow money, except in amounts not to exceed 10% of the Fund's total
assets (including the amount borrowed).
Fundamental Investment Policies (Money Market Funds)
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.
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.
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.
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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.
13. Issue any senior security (as that term is defined in the 1940 Act) if such
issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder.
Non-Fundamental Investment Policies (Money Market Funds)
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) 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.
(iii)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). These policies
are not fundamental and may be changed without shareholder or investor
approval in response to changes in the various federal requirements.
Regulatory Compliance
The Money Market Funds may follow non-fundamental operational policies that
are more restrictive than their fundamental investment policies as set
forth in the prospectus and this Statement of Additional Information, in
order to comply with applicable laws and regulations, including the
provisions of and regulations under the 1940 Act. In particular, the Funds
will comply with the various requirements of Rule 2a-7 (Rule), which
regulates money market mutual funds, including the eligibility,
diversification, quality and maturity limitations imposed by the Rule. Each
Fund will determine the effective maturity of its investments according to
the Rule. Each Fund may change these operational policies to reflect
changes in the laws and regulations without the approval of its
shareholders.
Currently, pursuant to Rule 2a-7, the Funds may invest only in U.S.
dollar-denominated "eligible securities" (as that term is defined in the
Rule) that have been determined by the Adviser to present minimal credit
risks pursuant to procedures approved by the Trustees. Generally, an
eligible security is a security that (i) has, or is deemed to have, a
remaining maturity of 397 days or less and (ii) is rated, or is issued by
an issuer with short-term debt outstanding that is rated in one of the two
highest rating categories by two nationally recognized statistical rating
organizations ("NRSROs") or, if only one NRSRO has issued a rating, by that
NRSRO. A security that originally had a maturity of greater than 397 days
is an eligible security if its remaining maturity, or remaining deemed
maturity, at the time of purchase is 397 calendar days or less and the
issuer has outstanding short-term debt that would be an eligible security.
Unrated securities may also be eligible securities if the Adviser
determines that they are of comparable quality to a rated eligible security
pursuant to guidelines approved by the Portfolio Trust's Trustees. A
description to the ratings of some NRSROs appears in Appendix C.
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.
Percentage and Rating Restrictions
A change in percentage resulting from changes in the value of the portfolio
securities or a change in the rating of a portfolio security is not
considered a violation of policy, except with respect to Fundamental
Investment Restriction No. 2, Non-Fundamental Investment Restriction item
(iii), and the limitation on the Portfolio's obligations created by reverse
repurchase agreements described in the Reverse Repurchase Agreements
section above. If the Funds' and the Portfolio's investment
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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.
PORTFOLIO TURNOVER (Equity Funds)
Although each Portfolio does not intend to invest for the purpose of seeking
short-term profits, securities in the Portfolios will be sold whenever the
Adviser believes it is appropriate to do so in light of the investment objective
of each Fund and each Portfolio, without regard to the length of time a
particular security may have been held. The estimated annual portfolio turnover
rate for the Top 50 World Portfolio, Top 50 Europe Portfolio, Top 50 Asia
Portfolio, Top 50 US Portfolio, Provesta Portfolio, and Japanese Equity
Portfolio is generally not expected to exceed 80%, 80%, 100%, 80%, 180%, and
150%, respectively. A 100% annual turnover rate would occur, for example, if all
portfolio securities (excluding short-term obligations) were replaced once in a
period of one year, or if 10% of the portfolio securities were replaced ten
times in one year. The rate of portfolio turnover of each Portfolio may exceed
that of certain other mutual funds with the same investment objective. The
amount of brokerage commissions and taxes on realized capital gains to be borne
by the shareholders of a Fund tend to increase as the level of portfolio
activity increases.
What Do Shares Cost?
Use Of The Amortized Cost Method (Money Market Funds)
The net asset value of each of the Funds' Shares is determined each day the NYSE
is open for regular trading and the Federal Reserve Bank is open for business.
(As of the date of this SAI, the NYSE and banks are 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 Portfolio Trust's Board of Trustees have decided that the best method for
determining the value of the Portfolio's portfolio instruments is amortized
cost. Under this method, portfolio instruments are valued at the acquisition
cost as adjusted for amortization of premium or accumulation of discount rather
than at current market value. Accordingly, neither the amount of daily income
nor the net asset value is affected by any unrealized appreciation or
depreciation of the portfolio investments. In periods of declining interest
rates, the indicated daily yield on the interests in the Portfolio computed by
dividing the annualized daily income on the Portfolio's portfolio investments by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Portfolio's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-7 (the
"Rule") promulgated by the Securities and Exchange Commission under the
Investment Company Act of 1940. Under the Rule, the Trustees must establish
procedures reasonably designed to stabilize the net asset value, as computed for
purposes of distribution and redemption taking into account current market
conditions and the Portfolio's investment objective. The procedures include
monitoring the relationship between the amortized cost value per share and the
net asset value per share based upon available indications of market value. The
Trustees will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Trustees will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
Market Values (Equity Funds)
Each Fund computes its net asset value once daily on Monday through Friday as
described 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.
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.
Market values of portfolio securities are determined as follows:
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.
The value of investments listed on a U.S. securities exchange, other than
options on stock indexes, is based on the last sale prices on the NYSE
generally at 4:00 p.m. (U.S. Eastern time) or, in the absence of recorded
sales, at the average of readily available closing bid-and-asked prices on
such exchange. Securities listed on a foreign exchange considered by the
Adviser to be a primary market for the securities are valued at the last
quoted sale price available before the time when net assets are valued.
Unlisted securities, and securities for which the Adviser determines the
listing exchange is not a primary market, are valued at the average of the
quoted bid-and-asked prices in the over-the-counter market. The value of
each security for which readily available market quotations exist is based
on a decision as to the broadest and most representative market for such
security. For purposes of calculating net asset value, all assets and
liabilities initially expressed in foreign currencies will be converted
into U.S. dollars at the prevailing market rates available at the time of
valuation.
Options on stock indexes traded on U.S. national securities exchanges are
valued at the close of options trading on such exchanges which is currently
4:10 p.m. (U.S. Eastern time). Stock index futures and related options,
which are traded on U.S. futures exchanges, are valued at their last sales
price as of the close of such futures exchanges which is currently 4:15
p.m. (U.S. Eastern time). Options, futures contracts and warrants traded on
a foreign stock exchange or on a foreign futures exchange are valued at the
last price available before the time when the net assets are valued.
Securities or other assets for which market quotations are not readily
available (including certain restricted and illiquid securities) are valued
at fair value in accordance with procedures established by and under the
general supervision and responsibility of the Trustees of the Portfolio
Trust. Such procedures include the use of independent pricing services that
use prices based upon yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and
general market conditions.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the NYSE and may also
take place on days on which the NYSE is closed. If events materially
affecting the value of securities occur between the time when the exchange
on which they are traded closes and the time when a Portfolio's net asset
value is calculated, such securities will be valued at fair value in
accordance with procedures established by and under the general supervision
of the Trustees, although the actual calculation may be done by others.
REDUCING OR eliminating THE FRONT-END SALES CHARGE (Class A Shares For All
Funds except Money Market Funds)
You can reduce or eliminate the applicable front-end sales charge, as follows:
Sales Charge Waiver
Sales charges may be waived on Class A Shares of the Fund (subject to
appropriate documentation furnished to the Distributor as it may request from
time to time in order to verify eligibility for this privilege) if purchased by:
1. Full-time employees of National Association of Securities Dealers, Inc.
("NASD") member firms and full-time employees of other financial
intermediaries which have entered into a supplemental agreement with the
Distributor pertaining to the sale of Fund shares, either for themselves
directly or pursuant to an employee benefit plan or other program, or for
their spouses or minor children. This privilege also applies to full-time
employees of financial intermediaries affiliated with NASD member firms
whose full-time employees are eligible to purchase Class A Shares at net
asset value;
2. Current full-time, part-time or retired employees of Deutsche Bank AG and
its affiliates or subsidiaries, current or former directors or trustees of
Deutsche Bank AG and its affiliates or subsidiaries, current or former
Board members of a fund advised by Deutsche Bank AG or any of its
affiliates or subsidiaries, including the Directors of the Corporation, or
the spouse or minor child of the foregoing, including an employee of
Deutsche Bank AG or any of its affiliates or subsidiaries who acts as
custodian for a minor child;
3. Registered representatives, bank trust officers, certified financial
planners and other employees (and their immediate families) of investment
professionals who have entered into a supplemental agreement with the
Distributor;
4. IRA Rollover accounts sponsored by Deutsche Bank Securities, Inc., Deutsche
Bank Trust Company, or any of their affiliates as administrator, trustee or
custodian, provided that the distribution proceeds are made from a
qualified retirement plan or from a 403(b)(7) plan that is sponsored,
administered or custodied by Deutsche Bank Trust Company or any of its
affiliates, and provided that, at the time of such distribution, such
qualified retirement plan or 403(b)(7) plan met the requirements of an
Eligible Benefit Plan and all or a portion of such plan's assets were
invested in the Flag Investors 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 Flag Investors 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 for (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
Larger purchases of the same Share class reduce or eliminate the sales charge
you pay. You can combine purchases of Shares made on the same day by you, your
spouse and your children under age 21. In addition, purchases made at one time
by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in a Fund in calculating the applicable sales charge on
the additional purchase.
Concurrent Purchases
You can combine concurrent purchases of the same share class of two or more
Funds in calculating the applicable sales charge.
Letter of Intent
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the Custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the Custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.
While this Letter of Intent will not obligate you 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 you establish the Letter of Intent,
current balances in accounts in Class A Shares of any other Fund, excluding the
Money Market Funds, will be aggregated to provide a purchase credit towards
fulfillment of the Letter of Intent. Prior trade prices will not be adjusted.
Reinvestment Privilege
You may reinvest, within 120 days, your Class A Share redemption proceeds at the
next determined NAV without any sales charge.
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.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE (CDSC) (All Classes
except Class Y Shares)
These reductions or eliminations are offered because: no sales commissions have
been advanced to the investment professional selling Shares; the shareholder has
already paid a CDSC; or nominal sales efforts are associated with the original
purchase of Shares. These reductions or eliminations may be discontinued at any
time, but only on new purchases.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
o following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
o 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;
o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements;
o of Shares held by the Directors of the Funds, Trustees of the underlying
Portfolios, 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;
o 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; and
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program.
How are the Funds Sold?
Under the Distributor's Contract with the Funds, the Distributor (ICC
Distributors, Inc.) offers Shares on a continuous, best-efforts basis. ICC
Distributors, Inc. is a Delaware corporation organized on 1987, and is the
principal distributor for a number of investment companies. In connection with
any sale, the Distributor may from time to time offer certain items of nominal
value to any shareholder or investor.
Conversion of Class B Shares
Class B Shares will automatically convert into Class A Shares on or about the
fifteenth of the month seven 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 Flag Investors Fund
will convert into Class A Shares based on the time of the initial purchase. For
purposes of conversion to Class A Shares, shares purchased through the
reinvestment of dividends and distributions paid on Class B Shares will be
considered to be held in a separate sub-account. Each time any Class B Shares in
the shareholder's account (other than those in the sub-account) convert to Class
A Shares, an equal pro rata portion of the Class B Shares in the sub-account
will also convert to Class A Shares. The conversion of Class B Shares to Class A
Shares is subject to the continuing availability of a ruling from the Internal
Revenue Service ("IRS") or an opinion of counsel that such conversions will not
constitute taxable events for federal tax purposes. There can be no assurance
that such ruling or opinion will be available, and the conversion of Class B
Shares to Class A Shares will not occur if such ruling or opinion is not
available. In such event, Class B Shares would continue to be subject to higher
expenses than Class A Shares for an indefinite period.
Purchasing Shares Through an Investment Professional
The investment professional which maintains investor accounts in Class B Shares
or Class C Shares with a Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the CDSC. In addition,
advance payments made to an investment professional may be subject to reclaim by
the Distributor for accounts transferred to the investment professional which
does not maintain investor accounts on a fully disclosed basis and does not
account for share ownership periods.
FRONT-END SALES CHARGE REALLOWANCES (Class A Shares For All Funds except
Money Market Funds)
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
distribution and services plans
Under a distribution and services plan adopted in accordance with Rule 12b-1 of
the 1940 Act, Class B Shares and Class C Shares are subject to a distribution
plan (Distribution Plan) and Class A Shares, Class B Shares and Class C Shares
are subject to a service plan (Service Plan).
Under the Distribution Plan, Class B Shares and Class C Shares will pay a fee to
the Distributor in an amount computed at an annual rate of 0.75% of the average
daily net assets of a Fund represented by Class B Shares and Class C Shares to
finance any activity which is principally intended to result in the sale of
Class B Shares and Class C Shares of a Fund subject to the Distribution Plan.
Because distribution fees to be paid by a Fund to the Distributor may not exceed
an annual rate of 0.75% of Class B Shares' and Class C Shares' average daily net
assets, it will take the Distributor a number of years to recoup the expenses,
including payments to other dealers, it has incurred for its sales services and
distribution-related support services pursuant to the Distribution Plan.
The Distribution Plan is a compensation-type plan. As such, a Fund makes no
payments to the Distributor except as described above. Therefore, a Fund does
not pay for unreimbursed expenses of the Distributor, including amounts expended
by the Distributor in excess of amounts received by it from a Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the Distributor's overhead expenses. However, the Distributor may be able to
recover such amounts or may earn a profit from payments made by shares under the
Distribution Plan.
Under the Service Plan, each Fund pays to DFM for the provision of certain
services to the holders of Class A Shares, Class B Shares and Class C Shares a
fee computed at an annual rate of 0.25% of the average daily net assets of each
such class of shares. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund, providing reports and other information to shareholders and
investment professionals, and services related to the maintenance of shareholder
accounts, and other services. DFM determines the amounts to be paid to
investment professionals, 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 Flag Investors 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 Flag Investors
Funds then held by Eligible Benefit Plans will be aggregated to determine the
fee payable. DFM reserves the right to cease paying these fees at any time. DFM
may pay such fees from its own funds in addition to amounts received from the
Funds under the Service Plan, including past profits or any other source
available to it. Such payments are subject to a reclaim from the financial
intermediary should the assets leave the plan or program within 12 months after
purchase.
Furthermore, with respect to Class A Shares, Class B Shares and Class C Shares,
the Distributor may offer to pay a fee from its own assets to investment
professionals 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
<PAGE>
predicated upon the amount of shares the investment professional sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the investment professional.
SUPPLEMENTAL PAYMENTS
Investment professionals who initiate and are responsible for purchases of $1
million or more may be paid fees out of the assets of the Distributor (but not
out of Fund assets). Also, investment professionals may be paid cash or
promotional incentives, such as reimbursement of certain expenses relating to
attendance at informational meetings about the Funds or other special events at
recreational-type facilities, or items of material value. These payments will be
based upon the amount of Shares the investment professional sells or may sell
and/or upon the type and nature of sales or marketing support furnished by the
investment professional.
Securities laws may require certain investment professionals such as depository
institutions to register as dealers. The Distributor may pay dealers an amount
up to 4.0% of the net asset value of Class B Shares and 1.0% of the net asset
value of Class C Shares purchased by their clients or customers as an advance
payment. These payments will be made directly by the Distributor from its
assets, and will not be made from the assets of a Fund. Dealers may voluntarily
waive receipt of all or any portion of these advance payments. The Distributor
may pay all or a portion of the distribution fee discussed above to investment
professionals that waive all or any portion of the advance payments.
How to Redeem and Exchange Shares
exchanging securities for shares
You may contact the Distributor to request a purchase of Shares in exchange for
securities you own. Each Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. Each Fund will value
your securities in the same manner as it values its assets. This exchange is
treated as a sale of your securities for federal tax purposes.
Redemption of Shares
Class B Shares redeemed within six years of purchase, applicable Class A Shares
redeemed within two years of purchase, and Class C Shares redeemed within one
year of purchase may be subject to a CDSC. The amount of the CDSC is based upon
the amount of the administrative fee paid by the Distributor to the investment
professionals at the time you purchase Shares for services rendered by the
investment professionals, and the length of time you remain a shareholder in a
Fund. Should an investment professional elect to receive an amount less than the
fee that is stated in a Fund's Prospectus for servicing a particular
shareholder, the CDSC and/or holding period for that particular shareholder will
be reduced accordingly.
A shareholder's right to receive payment with respect to any redemption may be
suspended or the payment of the redemption proceeds postponed: (i) during
periods when the NYSE or foreign stock exchange is closed for other than
weekends and holidays or when regular trading on such exchange is restricted as
determined by the SEC by rule or regulation, (ii) during periods in which an
emergency exists which causes disposal of, or evaluation of the net asset value
of, portfolio securities to be unreasonable or impracticable, or (iii) for such
other periods as the SEC may permit.
Redemption in Kind
Although each Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of a Fund's portfolio securities.
Because the Corporation has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940, each Fund is obligated to pay Share redemptions
to any one shareholder in cash only up to the lesser of $250,000 or 1% of the
net assets represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Corporation's Board determines that payment should be in kind. In
such a case, each Fund will pay all or a portion of the remainder of the
redemption in portfolio securities, valued in the same way as the underlying
Portfolio determines its NAV. The portfolio securities will be selected in a
manner that the Boards of the Corporation and the Portfolio Trust deem fair and
equitable and, 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 the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
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
<PAGE>
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.
Elimination of the CDSC under the systematic withdrawal program (SWP) (Class B
Shares)
The SWP 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 SWP.
The amounts that a shareholder may withdraw under a SWP that qualify for
elimination of the CDSC may not exceed 12% annually with reference initially to
the value of the Class B Shares upon establishment of the SWP 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 CDSC. In determining the
applicability of the CDSC, 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.
Redeeming Shares by Telephone
Your 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, you may experience difficulty in redeeming by telephone. If this
occurs, you should consider redemption by mail. If at any time a Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, you would be promptly notified.
Making an Exchange
You may have difficulty in making exchanges by telephone through brokers and
other investment professionals during times of drastic economic or market
changes. If you cannot contact your investment professional by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail to: Flag Investors Funds, Inc., c/o Federated Shareholder Services Company,
1099 Hingham Street, Rockland, MA 02370-3317.
Account and Share Information
VOTING RIGHTS
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 "Conversion of Class B Shares"). 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.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.
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 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.
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 October __, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: (TO BE FILED BY
AMENDMENT.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Shareholder Name
Fund Address Share Class Percentage Owned
- ------------------------------------ ----------------------------------------- -------------- ----------------------
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Top 50 World %
- ------------------------------------ ----------------------------------------- -------------- ----------------------
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Top 50 Europe %
- ------------------------------------ ----------------------------------------- -------------- ----------------------
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Top 50 Asia %
- ------------------------------------ ----------------------------------------- -------------- ----------------------
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Top 50 US %
- ------------------------------------ ----------------------------------------- -------------- ----------------------
- ------------------------------------ ----------------------------------------- -------------- ----------------------
European Mid-Cap Fund %
- ------------------------------------ ----------------------------------------- -------------- ----------------------
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Japanese Equity Fund %
- ------------------------------------ ----------------------------------------- -------------- ----------------------
- ------------------------------------ ----------------------------------------- -------------- ----------------------
US Money Market Fund %
- ------------------------------------ ----------------------------------------- -------------- ----------------------
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Institutional US Money Market Fund Y %
- ------------------------------------ ----------------------------------------- -------------- ----------------------
</TABLE>
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
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.
As used in this SAI 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.
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.
The Declaration of Trust of the Portfolio 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.
<PAGE>
Tax Information
FEDERAL INCOME TAX
Each Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other Funds will be separate from those realized by the Fund. Top
50 Europe, Top 50 Asia, Top 50 US, and Japanese Equity Fund are entitled to a
loss carry-forward, which may reduce the taxable gain that those Funds would
realize, and to which the shareholder would be subject, in the future.
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.
Foreign Investments
If the Portfolios purchase foreign securities, the investment income of their
corresponding Fund may be subject to foreign withholding or other taxes that
could reduce the return on these securities. Tax treaties between the United
States and foreign countries, however, may reduce or eliminate the amount of
foreign taxes to which the Funds would be subject. The effective rate of foreign
tax cannot be predicted since the amount of a Portfolio's assets to be invested
within various countries is uncertain. However, each Portfolio intends to
operate so as to qualify for treaty-reduced tax rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If a Portfolio invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon the Portfolio's disposition of PFIC
investments.
If more than 50% of the value of a Portfolio's assets at the end of the tax year
is represented by stock or securities of foreign corporations, its corresponding
Fund intends to qualify for certain Code stipulations that would allow Fund
shareholders to claim a foreign tax credit or deduction on their U.S. income tax
returns. The Code may limit a shareholder's ability to claim a foreign tax
credit. Shareholders who elect to deduct their portion of the Fund's foreign
taxes rather than take the foreign tax credit must itemize deductions on their
income tax returns.
STATE 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. Shareholders should consult their
own tax advisors with respect to any state or local taxes.
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 penalty which will be imposed by the IRS on the Fund and passed
on by the Fund to the shareholder. With respect to individual investors and
certain non-qualified retirement plans, U.S. federal regulations generally
require the Funds to withhold ("backup withholding") and remit to the U.S.
Treasury 31% of any dividends and distributions (including the proceeds of any
redemption) payable to a shareholder if such shareholder fails to certify either
that the TIN furnished in connection with opening an account is correct, or that
such shareholder has not received notice from the IRS of being subject to backup
withholding as a result of a failure to properly report taxable dividend or
interest income on a federal income tax return. Furthermore, the IRS may notify
the Funds to institute backup withholding if the IRS determines a shareholder's
TIN is incorrect. Backup withholding is not an additional tax; amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.
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.
Who Manages and Provides Services to the Funds?
OFFICERS AND BOARD OF DIRECTORS of the corporation and trustees of the portfolio
TRUST
The Directors of the Corporation, Trustees of the Portfolio Trust and their
executive officers are responsible for managing the Corporation and Portfolio
Trust's business affairs and for exercising all the Corporation and Portfolio
Trust's powers except those reserved for the shareholders. Information about
each Director, Trustee and the executive officers is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation and Portfolio Trust, principal occupations for the past five years
and positions held prior to the past five years, total compensation received as
a Director and Trustee from the Corporation and Portfolio Trust for its most
recent fiscal year ended August 31, 1999, and the total compensation received
from the Corporation, the Portfolio Trust and the Fund Complex for the most
recent calendar year. 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.
Neither the Corporation nor the Portfolio Trust requires employees, and none of
the executive officers devotes full time to the affairs of the Corporation or
Portfolio Trust or receive any compensation from a Fund or a Portfolio.
As of October __, 1999, the Fund's Board and Officers as a group owned
approximately ___ (___%) of the Funds' outstanding Class A, B, C, and Class Y
Shares.
An asterisk (*) denotes a Director /Trustee who is deemed to be an interested
person as defined in the Investment Company Act of 1940.
Christian Strenger* resigned as Director/Trustee effective October 14, 1999, and
G. Richard Stamberger* resigned as Director/Trustee effective August 6, 1999.
Neither Mr. Strenger nor Mr. Stamberger received compensation from the
Corporation, the Portfolio Trust, or the Fund Complex during the fiscal year
ended August 31, 1999.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
Name
Position with Corporation and Aggregate
Portfolio Trust Aggregate Compensation from
Compensation from the Corporation,
Birthdate the Corporation the Portfolio
and the Portfolio Trust and the Fund
Address Occupations for past 5 Years Trust Complex**
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
Richard R. Burt Chairman, IEP Advisors, Inc. and Weirton Steel; Member $ $
Director/Trustee of the Boards of Hollinger International, Archer Daniels (since
October 9, 1998) Midland and Homestake Mining; Director, the Mitchell February
3, 1947 Hutchins family of funds; Member, Textron Corporation c/o IEP Advisers
LLP International Advisory Council.
1275 Pennsylvania Avenue NW,
10th Floor Previous Positions: Partner, McKinsey & Company
Washington, DC 20004 (1991-1994); formerly, U.S. Chief Negotiator in the
Strategic Arms Reduction Talks (START) with the
former Soviet Union; Formerly, U.S. Ambassador
to the Federal Republic of Germany (1985-1991).
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
Edward C. Schmults Member of the Board of Directors, Green Point Financial $ $
Director/Trustee Corp.; Chairman of the Board of Trustees, The Edna
February 6, 1931 McConnell Clark Foundation; Director, The Germany Fund,
Rural Route One, Box 788 Inc. and The Central European Equity Fund, Inc.
Cuttingsville, VT 05738
Previous Position: Senior Vice President - External
Affairs and General Counsel of GTE Corporation (prior to
1994)
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
Robert H. Wadsworth President, The Wadsworth Group, First Fund Distributors, $ $
Director/Trustee Inc. and Guinness Flight Investment Funds, Inc.;
January 29, 1940 Director, The Germany Fund, Inc., The New Germany Fund,
Investment Company Inc., The Central European Equity Fund, Inc., DB New
Administration Corp. World Portfolio, Ltd., DB New World Fund, Limited and
4455 E. Camelback Road, LDC; Vice President, Professionally Managed Portfolios
Suite 261 E. and Advisors Series Trust.
Phoenix, AZ 85018
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
<PAGE>
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
Werner Walbroel President and Chief Executive, German American Chamber $ $
Director/Trustee of Commerce, Inc.; President, European American Chamber
August 28, 1937 of Commerce; Member of the United States German Youth
c/o German American Chamber of Exchange Council; Director, TUV Rheinland of
North Commerce America, Inc.; President and Director, German American 40 West
57th Street Partnership Program; Director, The Germany Fund, Inc., New York, NY
10019 DB New World Portfolio, Ltd., DB New World Fund, Limited
and LDC, and The Central European Equity Fund, Inc.
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
<PAGE>
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
Brian A. Lee President and Managing Director, DFM (since January $0 $0
President 1997); Director, Deutsche Bank Trust Company (since
November 20, 1947 1994); President and Chief Operating Officer, Deutsche
31 West 52nd Street Bank Trust Company (1994-1997).
New York, NY 10019
Previous Positions: Director, Deutsche Bank Securities
Corp. (1993-1994); Director, 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.
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
Robert R. Gambee Director, Deutsche Bank Securities, Inc. (since 1992); $0 $0
Secretary Chief Operating Officer and Secretary of The Germany
August 26, 1942 Fund, Inc., The Central European Equity Fund, Inc. and
31 West 52nd Street The New Germany Fund, Inc. (since 1997); Corporate
New York, NY 10019 Secretary, DB New World Fund
Limited; Secretary, Deutsche Bank Investment
Management Inc..
Previous Positions: Secretary and Treasurer, The
Germany Fund, Inc. (1986-1997), The New Germany Fund,
Inc. (1990-1997) and The Central European Equity Fund,
Inc. (1990-1997); First Vice President, Deutsche Bank
Securities, Inc. (1985-1991).
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
Daniel O. Hirsch Principal, BT Alex. Brown (since July 1998); Assistant $0 $0
Assistant Secretary General Counsel in the Office of the General Counsel at
March 27, 1954 the United States Securities and Exchange Commission
BT Alex. Brown Inc. (1993-1998).
One South Street
17th Floor
Baltimore, MD 21202
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
Joseph Parascondola Assistant Vice President, DFM (since January 1999). $0 $0
Treasurer
June 5, 1963 Previous Positions: Assistant Vice President and
31 West 52nd Street Assistant Manager, Weiss, Peck & Greer L.L.C. mutual
New York, NY 10019 funds operations department (1995-1998); Mutual Fund
Accounting Manager, Concord Financial Group (1991-1995).
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
Holger Naumann Director, DFM (Since January 1997); Head of $0 $0
Assistant Treasurer of the Participations, DWS Deutsche Gesellschaft fuer
Portfolio Trust Wertpapiersparen mbH (since December 1995).
May 17, 1962
DWS Deutsche Gesellschaft fuer Previous Positions: Group Strategy Department, Deutsche
Wertpapiersparen mbH, Bank AG (1992-1995)
Gruneburgweg 113-115
Frankfurt am Main, Germany
60323
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
<PAGE>
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
Joseph Bernhart Participations Department, DWS Deutsche Gesellschaft $0 $0
Assistant Treasurer of the fuer Wertpapiersparen mbH (since July 1997).
Portfolio Trust May 7, 1966 Previous Positions: DIH Deutsche Industrie-Holding
GmbH DWS Deutsche Gesellschaft fuer & Co. KG (affiliate to Deutsche Bank AG)
(1995-1997); Wertpapiersparen mbH, Trainee, Deutsche Bank AG (1994-1995).
Gruneburgweg 113-115
Frankfurt am Main, Germany
60323
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
</TABLE>
manager
Each Fund 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.
The investment manager to each Portfolio is DFM, an indirect subsidiary of
Deutsche Bank AG, a major global banking institution headquartered in Germany.
DFM is a Delaware corporation and registered investment adviser.
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.
The Glass-Steagall Act and other applicable laws generally prohibit banks
(including foreign banks having U.S. operations, such as Deutsche Bank) from
engaging in the business of underwriting or distributing securities in the
United States, and the Board of Governors of the Federal Reserve System has
issued an interpretation to the effect that under these laws a bank holding
company registered under the Federal Bank Holding Company Act (or a foreign bank
subject to such Act's provisions) or certain subsidiaries thereof may not
sponsor, organize, or control a registered open-end investment company
continuously engaged in the issuance of its shares, such as the Corporation. The
interpretation does not prohibit a holding company (or such a foreign bank) or a
subsidiary thereof from acting as investment manager and custodian to such an
investment company. Deutsche Bank believes that DFM may perform the services for
the Portfolio Trust and the Corporation contemplated by the Management Agreement
without violation of the Glass-Steagall Act or other applicable banking laws or
regulations. It is possible that future changes in federal statutes and
regulations concerning the permissible activities of banks or trust companies,
as well as further judicial or administrative decisions and interpretations of
present and future statutes and regulations, might prevent DFM from continuing
to perform such services for each Portfolio.
INVESTMENT ADVISER
On behalf of the Portfolio Trust, DFM has entered into an investment advisory
agreement (Advisory Agreement) with DWS for each Portfolio (other than the US
Money Market Portfolio and Top 50 US Portfolio) and with DBIM for the US Money
Market Portfolio and Top 50 US Portfolio. It is each Adviser's responsibility,
under the overall supervision of DFM, to conduct the day-to-day investment
decisions of the respective Portfolios, arrange for the execution of portfolio
transactions and generally manage each Portfolio's investments in accordance
with its investment objective, policies and restrictions. DWS and DBIM are
registered investment advisers. For these services, the respective Adviser
receives from DFM and not the Portfolios an annual fee, which is computed daily
and may be paid monthly, equal to a percentage of the average daily net assets
of each Portfolio as follows: 0.75% for Top 50 World Portfolio, Top 50 Europe
Portfolio and Top 50 Asia Portfolio; 0.60% for Top 50 US Portfolio, Provesta
Portfolio, and Japanese Equity Portfolio;; and 0.1125% for the US Money Market
Portfolio.
The Adviser shall not be liable to the Corporation, Portfolio Trust or any Fund
shareholder for any losses that may be sustained in the purchase, holding, or
sale of any security or 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 upon it by its contract.
BROKERAGE 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 or who have sold or are
selling Shares of the Fund and other mutual funds distributed by the
Distributor, subject to any applicable laws, rules and regulations.
The investment advisory fee that each Portfolio pays to the Adviser will not be
reduced as a consequence of the Adviser's receipt of brokerage and research
services. While such services are not expected to reduce the expenses of the
Adviser, the Adviser would, through the use of the services, avoid the
additional expenses which would be incurred if it should attempt to develop
comparable information through its own staff or obtain such services
independently.
In certain instances there may be securities that are suitable as an investment
for a Portfolio as well as for one or more of the Adviser's other clients.
Investment decisions for the Portfolios and for the Adviser's other clients are
made with a view to achieving their respective investment objectives. It may
develop that a particular security is bought or sold for only one client even
though it might be held by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the same security. Some simultaneous transactions are
inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could adversely affect the
price of or the size of the position obtainable in a security for a Portfolio.
When purchases or sales of the same security for a Portfolio and for other
portfolios managed by the Adviser occur contemporaneously, the purchase or sale
orders may be aggregated in order to obtain any price advantages available to
large volume purchases or sales.
Deutsche Bank AG or one of its subsidiaries or affiliates may act as one of the
agents of the Portfolios in the purchase and sale of portfolio securities,
options or futures transactions 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 or futures commission merchants. As one of the principal
brokers for the Portfolios, Deutsche Bank AG or its affiliates may receive
brokerage commissions or other transaction-related compensation from the
Portfolios.
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.
For the fiscal year ended, August 31, 1999, DBIM directed brokerage transactions
to certain brokers due to research services they provided. The total amount of
these transactions directed by DBIM was $___ for which the Portfolios paid $___
in brokerage commissions.
On August 31, 1999, the Portfolios owned securities of the following regular
broker/dealers: [identify issuer name and aggregate dollar amount of debt and
equity securities held by Portfolios].
For the fiscal year ended August 31, 1999, and 1998, the Portfolios paid $___
and $52,582.83 in brokerage commissions to Deutsche Bank AG, an affiliated
broker, which represents ___% and 12.42% of the aggregate brokerage commissions
paid and ___% and 16.06% of the aggregate principal amount of trades by
affiliated brokers.
For the fiscal year ended August 31, 1999, and 1998, the Portfolios paid $___
and $46,008.34 in brokerage commissions to Deutsche Bank Securities, New York,
an affiliated broker, which represents ___% and 10.87% of the aggregate
brokerage commissions paid and ___% and 21.13% of the aggregate principal amount
of trades by affiliated brokers.
For the fiscal year ended August 31, 1999, and 1998, the Portfolios paid $___
and $8,815.65 in brokerage commissions to Morgan Grenfell Asia Securities, Ltd.,
an affiliated broker, which represents ___% and 2.08% of the aggregate brokerage
commissions paid and ___% and 2.06% of the aggregate principal amount of trades
by affiliated brokers.
<PAGE>
For the fiscal year ended August 31, 1999, and 1998, the Portfolios paid $___
and $2,937.36 in brokerage commissions to Deutsche Morgan Grenfell, an
affiliated broker, which represents ___% and 0.69% of the aggregate brokerage
commissions paid and ___% and 0.78% of the aggregate principal amount of trades
by affiliated brokers.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Funds. The Administrator, 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. Federated Services Company
provides these services at the following annual rate of the average aggregate
daily net assets of each Fund as specified below:
Maximum Administrative Fee* Average Aggregate Daily Net Assets of each Fund
0.065 of 1% on the first $200 million 0.0525 of 1% on assets in excess of $200
million * The administrative fee received during any fiscal year shall be at
least $75,000 per Fund.
operations agent
Federated Services Company serves as operations agent to the Portfolios. The
Operations Agent of the Portfolios, 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. Federated Services Company provides these
services at the annual rate of 0.035% of the average daily net assets of each
Portfolio.
The operations agency fee received for each Portfolio, during any fiscal year,
shall be at least $60,000. The operations agency fee received for each
Portfolio, corresponding Fund and any other fund investing in the Portfolio,
taken together, shall be at least $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
IBT Trust Company (Cayman) Ltd. (IBT (Cayman)) serves as administrative agent to
the Portfolios. The Administrative Agent, (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 the investor register. IBT (Cayman)
provides these services at the following annual rate of the average aggregate
daily net assets of each Portfolio as specified below:
Maximum Administrative Agent Fee* Average Aggregate Daily Net Assets of each
Portfolio 0.025 of 1% on the first $200 million 0.02 of 1% on the next $800
million 0.01 of 1% on assets in excess of $1 billion * The administrative agency
fee received for each Portfolio shall be at least $40,000 for the first year of
the
Portfolio's
operation, $45,000 for the second year, and $50,000 for the third year.
CUSTODIAN
Investors Bank & Trust Company is custodian for the securities and cash of each
Funds' and each Portfolio's assets. Foreign instruments purchased by the Fund
are held by various subcustodial arrangements employed by Investors Bank & Trust
Company.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
fund accountant
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
<PAGE>
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
PricewaterhouseCoopers LLP is the independent accountant for the Corporation and
Portfolio Trust. 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.
FEES PAID BY THE Portfolio trust FOR SERVICES for fiscal year/periods ended
august 31
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------- ---------------------------- ------------------------ ------------------------ ------------------------
Portfolio Name Manager Fee Paid/ Advisory Fee Paid** Operations Agent Administrative Agent
Manager Fee Reimbursed Fee Paid Fee Paid
---------------------------- ------------------------ ------------------------ ------------------------
1999 1998* 1999 1998* 1999 1998* 1999 1998*
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
------------
Top 50 World $ $76,939 $ $57,704 $ $67,036 $ $36,556
Portfolio $0
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
Top 50 Europe $ $87,638 $ $65,728 $ $66,445 $ $36,556
Portfolio $0
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
Top 50 Asia $ $189,797 $ $142,347 $ $61,738 $ $35,112
Portfolio $0
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
Top 50 US $ $70,740 $ $49,934 $ $66,335 $ $36,556
Portfolio $0
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
Provesta $ $31,021 $ $21,897 $ $64,498 $ $34,889
Portfolio $0
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
Japanese Equity $ $11,948 $ $8,433 $ $65,332 $ $34,445
Portfolio $0
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
US Money Market $ $215,792 $ $161,844 $ $28,933 $ $67,796
Portfolio $0
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
</TABLE>
* The commencement of operations for the Portfolios are as follows:
October 2, 1997: Top 50 World, Top 50 Europe, Top 50 US
October 14, 1997: Top 50 Asia
October 17, 1997: ProvestaOctober 20, 1997: Japanese Equity
March 25, 1998: US Money Market
** The Advisory fee was paid by DFM out of the manager fee it received from the
Portfolios.
<PAGE>
FEES PAID BY THE funds FOR SERVICES for the year/period ended august 31
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------------------- ---------------------------------- ----------------------------------
Fund Name Administrative Fee Brokerage Commissions Paid
---------------------------------- ----------------------------------
1999 1998* 1999 1998*
- ---------------------------- ---------------- ----------------- ----------------- ----------------
Top 50 World $ $226 $ $
- ---------------------------- ---------------- ----------------- ----------------- ----------------
- ---------------------------- ---------------- ----------------- ----------------- ----------------
Top 50 Europe $ $700 $ $
- ---------------------------- ---------------- ----------------- ----------------- ----------------
- ---------------------------- ---------------- ----------------- ----------------- ----------------
Top 50 Asia $ $197 $ $
- ---------------------------- ---------------- ----------------- ----------------- ----------------
- ---------------------------- ---------------- ----------------- ----------------- ----------------
Top 50 US $ $1,064 $ $
- ---------------------------- ---------------- ----------------- ----------------- ----------------
- ---------------------------- ---------------- ----------------- ----------------- ----------------
European Mid-Cap Fund $ $941 $ $
- ---------------------------- ---------------- ----------------- ----------------- ----------------
- ---------------------------- ---------------- ----------------- ----------------- ----------------
Japanese Equity Fund $ $182 $ $
- ---------------------------- ---------------- ----------------- ----------------- ----------------
- ---------------------------- ---------------- ----------------- ----------------- ----------------
US Money Market Fund $ $120 $ $
- ---------------------------- ---------------- ----------------- ----------------- ----------------
- ---------------------------- ---------------- ----------------- ----------------- ----------------
Institutional US Money $ $0 $ $
Market Fund
- ---------------------------- ---------------- ----------------- ----------------- ----------------
</TABLE>
* The commencement of operations for the Funds are as follows:
October 2, 1997: Top 50 World, Top 50 Europe, Top 50 US
October 14, 1997: Top 50 AsiaOctober 17, 1997: European Mid-Cap Fund
October 20, 1997: Japanese Equity Fund
March 25, 1998: US Money Market Fund
December 10, 1998: Institutional US Money Market Fund
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------------------- --------------- -------------------------------------------------------------
Fund Name For the fiscal year ended August 31, 1999
--------------- -------------------------------------------------------------
------------------------------ ----------------------------------------------
12b-1 Fee Shareholder Services Fee
------------------------------ ----------------------------------------------
-------------- --------------- --------------- --------------
Class B Class C Class A Shares Class B Class C
Shares Shares Shares Shares
- ----------------------------------- --------------- -------------- ---------------
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
Top 50 World $ $ $ $ $
- ----------------------------------- --------------- -------------- ---------------
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
Top 50 Europe $ $ $ $ $
- ----------------------------------- --------------- -------------- ---------------
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
Top 50 Asia $ $ $ $ $
- ----------------------------------- --------------- -------------- ---------------
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
Top 50 US $ $ $ $ $
- ----------------------------------- --------------- -------------- ---------------
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
European Mid-Cap Fund $ $ $ $ $
- ----------------------------------- --------------- -------------- ---------------
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
Japanese Equity Fund $ $ $ $ $
- ----------------------------------- --------------- -------------- ---------------
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
US Money Market Fund $ $ $ $ $
- ----------------------------------- --------------- -------------- ---------------
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
Institutional US Money Market N/A N/A N/A N/A N/A
Fund*
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares. * Class Y Shares of Institutional
US Money Market Fund do not incur 12b-1 fees or shareholder services fees.
How Do the Funds Measure Performance?
The Funds may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Share performance reflects the effect of non-recurring charges, such as maximum
sales charges, which, if excluded, would increase the total return and yield.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
Average Annual Total Returns and Yield
Total returns given for the last fiscal year or since inception period ended
August 31, 1999.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------- ----------------------------------------------------- -----------------------------------------------------
Fund Name Average Annual Total Return Average Annual Total Return
without Sales Charges/CDSC with Sales Charges/CDSC
- ----------------------- ----------------------------------------------------- -----------------------------------------------------
----------------- ----------------- -----------------
Class A Shares+ Class B Shares Class C Shares Class A Shares Class B Shares Class C Shares
One Year One Year One Year One Year One Year One Year
Since Inception Since Inception Since Inception Since Inception Since Inception Since Inception
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Top 50 World % % N/A % % N/A
%(A) %(G) %(A) %(G)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Top 50 Europe % % % % % %
%(A) %(F) %(K) %(A) %(F) %(K)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Top 50 Asia % % N/A % % N/A
%(B) %(H) %(B) %(H)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Top 50 US % % % % % %
%(A) %(E) %(K) %(A) %(E) %(K)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
European Mid-Cap Fund % % % % % %
%(C) %(F) %(K) %(C) %(F) %(K)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Japanese Equity Fund % % N/A % % N/A
%(D) %(J) %(D) %(J)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
US Money Market Fund % % N/A N/A N/A N/A
%(L) %(M)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Institutional US Money % N/A N/A N/A N/A N/A
Market Fund+ %(N)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
</TABLE>
(A) October 2, 1997; (B) October 14, 1997; (C) October 17, 1997; (D) October 20,
1997; (E) March 18, 1998; (F) March 30, 1998; (G) May 4, 1998; (H) May 5, 1998;
(I) October 9, 1998; (J) August 10, 1998; (K) September 2, 1998; (L) March 25,
1998; (M) July 20, 1998; (N) December 10, 1998. + Total return for Institutional
US Money Market Fund is for Class Y Shares.
<PAGE>
Total Return
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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.
When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.
Yield (Equity Funds)
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then 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 Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
Yield (Money Market Funds)
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated according to the
formula below, by: determining the net change in the value of a hypothetical
account with a balance of one Share at the beginning of the base period, with
the net change excluding capital changes but including the value of any
additional Shares purchased with dividends earned from the original one Share
and all dividends declared on the original and any purchased Shares; dividing
the net change in the account's value by the value of the account at the
beginning of the base period to determine the base period return; and
multiplying the base period return by 365/7. The effective yield is calculated
by compounding the unannualized base-period return by: adding one to the
base-period return, raising the sum to the 365/7th power; and subtracting one
from the result.
7-day effective yield = (total 7 days' dividends +
1)365/7 - 1
The effective yield for the 7-days ended August 31, 1999, for the US Money
Market Fund was ___% for Class A Shares and ___% for Class B Shares. The
effective yield for the 7-days ended August 31, 1999, for the Institutional US
Money Market Fund was ___% for Class Y Shares.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
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 1-888-433-6385.
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
o information about the mutual fund industry from sources such as the
Investment Company Institute.
General
The performance of each of the classes of Fund 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.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
Information and Comparisons Relating to the Funds, Secondary Market
Trading, Net Asset Size, Performance and Tax Treatment
Information regarding various aspects of each Fund, including the net asset size
thereof, as well as the performance and the tax treatment of Fund Shares, may be
included from time to time in advertisements, sales literature and other
communications as well as in reports to current or prospective investors.
Information may be provided to prospective investors to help such investors
assess their specific investment goals and to aid in their understanding of
various financial strategies. Such information may present current economic and
political trends and conditions and may describe general principles of investing
such as asset allocation, diversification and risk tolerance, as well as
specific investment techniques.
Information regarding the net asset size of a Fund may be stated in
communications to prospective or current investors for one or more time periods,
including annual, year-to-date or daily periods. Such information may also be
expressed in terms of the total number of Fund Shares outstanding as of one or
more time periods. Factors integral to the size of a Fund's net assets, such as
the volume and activity of purchases and redemptions of Fund Shares, may also be
discussed, and may be specified from time to time or with respect to various
periods of time. Comparisons of such information during various periods may also
be made and may be expressed by means of percentages.
Information may be provided to investors regarding capital gains distributions
by the Funds, including historical information relating to such distributions.
Comparisons between the Funds and other investment vehicles such as mutual funds
may be made regarding such capital gains distributions, including the expected
effects of differing levels of portfolio adjustments on such distributions and
the potential tax consequences thereof.
Information may also be provided in communications to prospective or current
investors comparing and contrasting the relative advantages of investing in Fund
Shares as compared to other investment vehicles, such as mutual funds, both on
an individual and a group basis (e.g., stock index mutual funds). Such
information may include comparisons of costs, expense ratios, expressed either
in dollars or basis points, stock lending activities, permitted investments and
hedging activities (e.g., engaging in options or futures transactions), price
volatility and portfolio turnover data and analyses. In addition, such
information may quote, reprint or include portions of financial, scholarly or
business publications or periodicals, including model allocation schedules or
portfolios as the foregoing relate to the comparison of Fund Shares to other
investment vehicles, current economic financial and political conditions,
investment philosophy or techniques or the desirability of owning Fund Shares.
Such information may be provided both before and after deduction of sales
charges.
Information on the performance of a Fund on the basis of changes in net asset
value per Fund Share, with or without reinvesting all dividends and/or any
distributions of capital in additional Fund Shares, may be included from time to
time in a Fund's performance reporting. The performance of a Fund may also be
compared to the performance of money managers as reported in market surveys such
as SEI Fund Evaluation Survey (a leading data base of tax-exempt fund) or mutual
funds such as those reported by Lipper Analytical Services, Morningstar,
Micropal, Money Magazine's Fund Watch or Wiesenberger Investment Companies
Service, each of which measures performance following their own specific and
well-defined calculation measures, or of the NYSE Composite Index, the American
Stock Exchange Index (indices of stocks traded on the NYSE and the American
Stock Exchange, respectively), the Dow Jones Industrial Average (an index of 30
widely traded industrial common stocks), any widely recognized foreign stock and
bond index or similar measurement standards during the same period of time.
Information relating to the relative net asset value performance of Fund Shares
may be compared against a wide variety of investment categories and asset
classes, including common stocks, small capitalization stocks, ADRs, long and
intermediate term corporate and government bonds, Treasury bills, futures
contracts, the rate of inflation in the United States (based on the Consumer
Price Index ("CPI") or other recognized indices) and other capital markets and
combinations thereof. Historical returns of the capital markets relating to a
Fund may be provided by independent statistical studies and sources, such as
those provided to Ibbotson Associates. The performance of these capital markets
is based on the returns of different indices. Information may be presented using
the performance of these and other capital markets to demonstrate general
investment strategies. So, for example, performance of Fund Shares may be
compared to the performance of selected asset classes such as short-term U.S.
Treasury bills, long-term U.S. Treasury bonds, long-term corporate bonds,
mid-capitalization stocks, small capitalization stocks and various classes of
foreign stocks and may also be measured against the rate of inflation as set
forth in well-known indices (such as the CPI). Performance comparisons may also
include the value of a hypothetical investment in any of these capital markets.
Performance of Fund Shares may also be compared to that of other indices or
compilations that may be developed and made available to the investing public in
the future. Of course, such comparisons will only reflect past performance of
Fund Shares and the investment categories, indices or compilations chosen and no
guarantees can be made of future results regarding the performance of either
Fund Shares or the asset classes chosen for such comparisons.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
o European Mid-Cap Fund may be compared to the DAX Composite Index ("CDAX"),
Financial Times ("FT")/Standard & Poor's Medium-Small Cap Europe Index,
Deutscher Aktien Index ("DAX"), DSX Mid-Cap, and the Morgan Stanley Capital
Index ("MSCI") - Europe Index;
o
o Japanese Equity Fund may be compared to the Tokyo Price Index ("TOPIX"),
Nikkei-225 Index, and the MSCI Japan Index;
o Top 50 World may be compared to the MSCI-World Index;
o Top 50 Europe may be compared to the MSCI-Europe Index;
o Top 50 Asia may be compared to the MSCI Pacific Index and MSCI Pacific ex
Japan Index;
o Top 50 US may be compared to Standard & Poor's 500 Index.
Each index is an unmanaged index of common security prices, converted into U.S.
dollars where appropriate. Any index selected by a Fund for information purposes
may not compute total return in the same manner as the Funds and may exclude,
for example, dividends paid, brokerage and other fees.
Information comparing the portfolio holdings relating to a particular Fund, with
those of relevant stock indices or other investment vehicles, such as mutual
funds or futures contracts, may be advertised or reported by the Fund. Equity
analytic measures, such as price/earnings ratio, price/book value and price/cash
flow and market capitalizations, may be calculated for the portfolio holdings
and may be reported on an historical basis or on the basis of independent
forecasts.
Information may be provided by a Fund on the total return for various composites
of the different Funds. These composite returns might be compared to other
securities or indices utilizing any of the comparative measures that might be
used for the individual Fund, including correlations, standard deviation, and
tracking error analysis.
Past results may not be indicative of future performance. The investment return
and net asset value of Shares of each Fund will fluctuate so that the Shares,
when redeemed, may be worth more or less than their original cost.
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.
Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
<PAGE>
Financial Information
The Financial Statements for the Funds for the fiscal year ended August 31,
1999, are incorporated herein by reference to the Annual Report to Shareholders
of Deutsche Funds, Inc. (now renamed as Flag Investors Funds, Inc.), dated
August 31, 1999.
<PAGE>
Appendix A
THE GERMAN SECURITIES MARKETS
Equity Markets
Equity securities trade on the country's eight regional stock exchanges
(Frankfurt, Dusseldorf, Munich, Hamburg, Berlin, Stuttgart, Hannover and
Bremen), of which Frankfurt accounted for approximately ___% of the total volume
as of August 31, 1999. While trading in listed securities is not legally or
otherwise confined to the exchanges, they are believed to handle the largest
part of trading volume in equity transactions.
Market Capitalization and Trading Volume
of Equity Securities on German Stock Exchanges1
(in billions)
Market Trading Volume for
Capitalization as of the year ended
December 312 December 312
1992 $348.14 DM 561.89 $ 876.8 DM 1,415.2
1993 463.48 800.10 1,150.3 1,985.8
1994 499.25 773.88 1,302.9 2,017.9
1995 544.89 781.10 1,146.8 1,643.9
1996 635.95 988.77 1,487.6 2,312.9
1997 825.23 1,483.85 2,067.4 3,717.4
1998
1999*
1 Excluding stocks of foreign-domiciled companies and investment companies.
2 U.S. dollar equivalents calculated at year-end exchange rates. The figures
for 1992 through 1994 include warrants.
* Year-to-date as of August 31, 1999.
Sources: Deutsche Borse AG and the Deutsche Bundesbank.
German stock exchanges offer three different market segments within which stocks
are traded:
(i) The official market (Amtlicher Handel) comprises trading in shares
which have been formally admitted to official listing by the admissions
committee of the stock exchange concerned, based upon disclosure in the
listing application or "prospectus."
(ii)The regulated, unlisted market (Neuer Markt) comprises trading in
shares not admitted to official listing. Companies admitted to this
market segment are exempt from publishing a full listing prospectus,
but are required to submit an offering memorandum. Admission is granted
by a special committee which is also responsible for the supervision of
the establishment of prices.
(iii) The unofficial unregulated telephone or over-the-counter market
(Freiverkehr) comprises trading in securities that have not followed
any special listing procedure. It includes trading in securities by
telephone or on the stock exchange premises, between banks or through
floor brokers prior to or after official trading hours.
For an official listing, the German stock exchanges and pertinent legislation
require public disclosure of all information about an issuer considered material
to an evaluation of the securities to be listed. Applications must further
provide the latest annual financial statements of the issuer with explanatory
notes, including disclosure of any liabilities not shown therein. They must also
furnish details of the issuer to be listed. Generally, DM 0.5 million par value
(i.e., 10,000 shares of DM 50 par value) is considered to be the minimum amount
suitable for full listing. Applications for admission to regulated unlisted
trading must contain essentially similar information as that required for full
listing, but in a condensed form that may be submitted as a memorandum. However,
the document, in lieu of being published, may be deposited with paying agents so
long as reference is made in one of the official stock exchange publications.
<PAGE>
Markets in listed securities are generally of the auction type, but a
substantial amount of listed securities also changes hands in inter-bank dealer
markets both on and off the stock exchanges. Prices for active stocks, including
those of larger companies, are quoted continuously during stock exchange hours.
Less active listed and stocks admitted to trading in the regulated unlisted
market are quoted only once a day.
Options on both domestic and foreign stocks have been traded since 1970 although
trading activity is relatively low. There is also active trading in share
warrants, generally issued in conjunction with bonds.
As set forth below under "Role of Banks in German Capital Markets," German
banks, brokers and selected domestic investment trusts are regular members of
the stock exchanges. Banks may deal on a net basis for their own account, as
well as for accounts of domestic and foreign institutional customers during or
after regular stock exchange hours.
Stock Indices
Two principal stock indices in Germany are the DAX Index (Deutscher Aktienindex;
i.e., German Stock Index) and the CDAX German Composite Index (Composite
Deutscher Aktienindex). The DAX Index is composed of the [30] most actively
traded German blue-chip stocks. It represents approximately [70]% of the total
equity capital of German exchange-listed companies. Trading in these shares
accounts for approximately [74]% of the stock volume traded on the German
exchanges. The CDAX German Composite Index comprises all German stocks listed in
the official market at the Frankfurt Stock Exchange.
Set forth in the table below is information concerning the total return of the
DAX Index and CDAX Index for each of the periods indicated. 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Annual Total Return1
1992 1993 1994 1995 1996 1997 1998
1999*
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.
* Year-to-date as of August 31, 1999.
Trading volume tends to concentrate on the relatively few companies having both
large market capitalization and a broad distribution of their stock with few or
no large holders. The five companies having the largest annual trading volume of
their stock as of August 31, 1999 represented ___% of total trading volume on
the German stock exchanges: [Daimler Benz AG] with DM ___, [Deutsche Bank AG]
with DM ___, [Siemens AG] with DM ___, [SAP AG] with DM ___, and [VW AG] with DM
___.
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 following table is information concerning the industry
composition of the DAX Index and CDAX Index.
<PAGE>
Industry Composition of DAX(1) and CDAX(2)
Index as of August 31, 1999
DAX CDAX
Automobile % %
Construction % %
Chemicals % %
Mergers % %
Electronics Industry % %
Brewery % %
Hypo Banks % %
Banks % %
Credit Banks % %
Traffic % %
Mechanical Engineering % %
Paper % %
Utilities % %
Steel and Raw Materials % %
Textile % %
Insurance % %
Consumer Goods % %
Total 100.00% 100.00%
1 The DAX Index is comprised of [30] stocks representing approximately [75]% of
the market capitalization of the Frankfurt stock exchange.
2 The CDAX Index is comprised of [371] stocks (subject to adjustments).
Primary Markets
The amount of funds raised in equity financings in 1999 as of August 31, was
equal to DM ___ while the number of financings was ___. The total value of
primary offerings for each of the previous five years of listed equity issues is
shown in the table below.
Primary Offerings of Listed Equity Securities
by Domestic Issuers
(millions of DM)
1992 1993 1994 1995 1996 1997 1998
1999*
Value 804 833 1,246 6,495 24,807 4,961
* As of August 31, 1999.
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 Adviser, holds significant
participation in five listed German companies. The term "significant" denotes
direct ownership of over 25% of the voting equity which, under German law,
provides the holder with veto power in policy decisions, such as a change of
business objectives or major acquisitions. Deutsche Bank owns equity interests
ranging from 25% to 50% in holding companies that own participations of 25% or
more in an additional five listed German companies, most of which are publicly
owned. In addition, Deutsche Bank may maintain trading positions in the
securities of these and other (domestic and foreign) companies, and may make
trading markets in some of them, subject to limitations imposed by applicable
law, including the limitations of the German Stock Exchange Law (Borsengesetz)
of 1896, as amended. Deutsche Bank directors or officers may, by virtue of such
ownership or otherwise, be elected to the Supervisory Boards of these and other
companies. Deutsche Bank and its affiliates may also have commercial lending
relationships with companies whose securities a Portfolio may acquire.
In their capacity as underwriters, German banks originate and manage new issues
of domestic and international fixed income and equity securities both in their
respective domestic primary market and in the Euromarket. Deutsche Bank
frequently acts as lead manager for domestic underwritten offerings of both debt
and equity securities. Under an SEC rule, the Portfolios may purchase securities
in offerings in which Deutsche Bank or one of its affiliates is the principal
underwriter, subject to certain conditions. Directly and through its various
wholly-owned affiliates abroad, Deutsche Bank is a major player in the Eurobond
market. Although the Portfolio will not purchase securities from or sell
securities to Deutsche Bank, the trading activities of Deutsche Bank as well as
the investment positions and underwriting activities in such securities could
have either an adverse or beneficial effect on the price of those securities
already held in the Portfolio or contemplated for purchase and, depending on the
size of Deutsche Bank's position, may or may not affect the availability of the
securities for investment by the Portfolio.
JAPANESE EQUITY SECURITIES MARKETS
Listed securities in Japan trade on three Main Japanese Exchanges (the Nagoya
Stock Exchange, the Osaka Securities Exchange and the Tokyo Stock Exchange (the
"TSE")) and five regional stock exchanges (the Fukuoka Stock Exchange, the
Hiroshima Stock Exchange, the Kyoto Stock Exchange, the Niigata Stock Exchange
and the Sapporo Stock Exchange). The TSE is the largest and most prestigious of
the exchanges and is widely regarded as the central marketplace for all of
Japan.
There are two widely followed price indices in Japan for listed securities. The
Nikkei Stock Average ("NSA") is the arithmetic average of 225 selected stocks
computed by a private corporation. The Tokyo Stock Price Index ("TOPIX"),
published by the TSE, is the composite index of all common stock listed on the
First Section of the TSE. TOPIX reflects the change in the aggregate market
value of the common stocks as compared to the aggregate market value of those
stocks as of the close on January 4, 1968.
The following table sets forth the NSA and TOPIX for 1987 through August 31,
1999 and yen and dollar-adjusted total return information for those time
periods.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
NSA TOPIX
Total Return1 Total Return1
Dollar Dollar
Index (Y) Adjusted Index (Y) Adjusted
1987 21,564.00 15.31% 50.54% 1,725.83 10.89% 44.77%
1988 30,159.00 39.86% 35.61% 2,357.03 36.57% 32.42%
1989 38,915.87 29.04% 12.21% 2,881.37 22.25% 6.31%
1990 23,848.71 -38.72% -35.08% 1,733.83 -39.83% -36.26%
1991 22,983.77 -3.63% 4.75% 1,714.68 -1.10% 7.49%
1992 16,924.95 -26.36% -26.33% 1,307.66 -23.74% -23.71%
1993 17,417.24 2.91% 15.02% 1,439.31 10.07% 23.03%
1994 19,723.06 13.24% 27.00% 1,559.09 8.32% 21.48%
1995 19,868.15 0.74% -2.85% 1,577.70 1.19% -2.41%
1996 19,361.35 -2.55% -13.06% 1,470.94 -6.77% -16.83%
1997 15,258.74 -21.19% -29.65% 1,175.03 -20.12% -28.69%
1998 % % % %
1999* % % % %
</TABLE>
1 Total return is the percent change in the index from the start of the
year to the end. * Year-to-date as of August 31, 1999.
Sources: Tokyo Stock Exchange, Annual Securities Statistics (1998); Monthly
Statistics Report (Dec. 1987, 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995,
1996, 1997, 1998, [insert month] 1999).
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
<PAGE>
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).
Share prices of companies traded on Japanese stock exchanges reached historical
peaks in 1989 and 1990. Afterwards, stock prices decreased significantly (with
the Nikkei index of 225 stocks at 14309 in 1992). After stabilizing at low
levels during the next six years, new low levels were once again reached in 1998
(with the Nikkei attaining a new twelve year low of 12879 in early October,
1998). 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. Japanese banks have experienced, and may continue to
experience, substantial levels of non-performing loans, making the
nationalization of some institutions a significant concern. The decline in stock
prices after 1989 has raised the cost of capital for industry and has reduced
the value of stock holdings by banks and corporations. These effects have, in
turn, contributed to the recent weakness in Japan's economy and could continue
to have an adverse impact in the future.
Further, recent events, not only in Japan but in other countries in the Asian
region, as well as in Russia, may negatively impact the Funds. Such events
include currency volatility and depreciation, high interest rates, banking
sector crises, market volatility, political instability and declining asset
values. Taken together, these and other factors are likely to: (1) have a
material adverse effect on economic growth and (2) increase volatility in the
prices at which securities and other financial instruments are traded. As a
result, there can be no assurance that the political and economic developments
in this and other parts of the world will not have a material adverse effect on
the net asset value of the Funds investing a significant portion of their assets
in the securities of issuers domiciled in, or deriving a large percentage of
their revenues from, such countries.
The following table sets forth the aggregate trading volume and the value of
Japanese stocks on the eight Japanese stock exchanges for the years 1989 through
1998, and year-to-date as of August 31, 1999. Trading on the TSE represented
over 89% of trading volume in each year.
Volume Value
Year (millions of shares) ((Y)bils.)
1989 256,296 386,395
1990 145,837 231,837
1991 107,844 134,160
1992 82,563 80,456
1993 101,172 106,123
1994 105,936 114,622
1995 120,148 115,840
1996 126,496 136,170
1997 130,657 151,450
1998
1999*
* Year-to-date as of August 31, 1999.
Source: Tokyo Stock Exchange, Fact Book 1999.
The Main Japanese Exchanges divide listed companies into First and Second
Sections. Generally, larger, established companies are assigned to the First
Section. Such companies meet more stringent listing criteria relating to the
size and business condition of the issuing company, the liquidity of its
securities and other factors pertinent to investor protection. At the end of
August 31, 1999, ___ Japanese companies were listed on the First Section of the
TSE. Newly listed and smaller companies are assigned to the Second Section. At
the end of August 31, 1999, ___ 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 ___ leading Japanese companies on the TSE, by market value, represented ___%
of the total market value of the TSE at August 31, 1999. As of August 31, 1999,
three industrial groups accounted for approximately ___% of the total market
value of the TSE: banks, ___%; chemicals, ___%; and retail trade, ___%. The
following table sets forth the number of companies listed on the TSE and market
value by industrial group for [year-end 1998/year-to-date as of August 31,
1999].
<PAGE>
Number of Market Values
Companies ((Y) bils.)
Fishery, Agriculture & Forestry Mining Construction Foods Textiles & Apparels
Pulp & Paper Chemicals Pharmaceutical Oil & Coal Products Rubber Products Glass
& Ceramics Products Iron & Steel Nonferrous Metals Metal Products Machinery
Electric Appliances Transportation Equipment Precision Instruments Other
Products Electric Power & Gas Land Transportation Marine Transportation Air
Transportation
Warehousing & Harbor
Transportation Services
Communication
Wholesale Trade
Retail Trade
Banks
Securities
Insurance
Other Financing Businesses
Real Estate
Services
Total
Manufacturing
Non-Manufacturing
Total
Source: Tokyo Stock Exchange, Fact Book 1999.
The amount of funds raised in equity financings by all the companies listed on
all eight Japanese stock exchanges year-to-date as of August 31, 1999, as
compared to calendar year 1998, decreased by ___ yen to ___ yen while the number
of financings decreased by ___ to ___. The following table sets forth the number
of equity financings by companies listed on all eight of the Japanese stock
exchanges and the amount raised for each of 1992 through 1998, and year-to-date
as of August 31, 1999.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 ((Y)bils.) Financings ((Y)bils.) Financings ((Y)bils.) Financings ((Y)bils.) ((Y)bils.)
1992 20 111 3 4 22 102 127 203 419
1993 9 48 4 7 14 150 184 617 822
1994 2 10 18 237 8 239 180 451 935
1995 12 96 8 33 19 160 118 299 588
1996 9 337 36 305 20 218 187 673 1,533
1997 9 73 26 128 19 369 88 368 938
1998
1999*
* Year-to-date as of August 31, 1999.
Source: Tokyo Stock Exchange, Fact Book 1999.
</TABLE>
<PAGE>
Appendix B
Member States of the European Union
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom
Organization for Economic Cooperation and Development Members
Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland,
France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea,
Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal,
Spain, Sweden, Switzerland, Turkey, United Kingdom, United States
States Party to the Convention on the European Economic Area
Austria, Belgium, Denmark, Finland, France, Germany, Greece, 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
Canada****
Over-the-Counter Market
Japan****
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, Top 50 Europe, Top 50 Asia, European Mid-Cap Fund, Global Bond
Fund and European Bond Fund only.
** Not applicable to the European Mid-Cap Fund.
*** Not applicable to the German Equity Fund.
**** European Mid-Cap Fund, Global Bond Fund and European Bond Fund only.
<PAGE>
Appendix C
Standard & Poor's
Long-Term Debt Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
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 higher-rated issues only in 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 in higher-rated categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
Commercial Paper (CP) Ratings
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Short-Term Municipal Obligation Ratings
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
Variable Rate Demand Notes (VRDNs) And Tender Option Bonds (TOBs) Ratings
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
Moody's Investors Service, Inc.
Long-Term Bond Rating Definitions
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
edged. 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.
Ba--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Commercial Paper Ratings
P-1--Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2--Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Short-Term Municipal Obligation Ratings
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG). (See below.) The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1--This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2--This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
Variable Rate Demand Notes (VRDNs) And Tender Option Bonds (TOBs) Ratings
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled
<PAGE>
principal and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating can be
assigned a 1 or 2 designation using the same definitions described above for the
MIG rating.
Fitch IBCA, Inc./Fitch Investors Service, L.P.
Long-Term Debt Rating Definitions
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are imminent default in payment of interest or principal.
Short-Term Debt Rating Definitions
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Long-Term Debt Ratings
NR--Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3)--The underlying issuer/obligor/guarantor has other outstanding debt rated
A by S&P or Moody's.
Other Considerations
Among the factors considered by Moody's in assigning bond, note and commercial
paper ratings are the following: (i) evaluation of the management of the issuer;
(ii) economic evaluation of the issuer's industry or industries and an appraisal
of speculative-type risks which may be inherent in certain areas; (iii)
evaluation of the issuer's products in relation to competition and customer
acceptance; (iv) liquidity; (v) amount and quality of long-term debt; (vi) trend
of earnings over a period of 10 years; (vii) financial strength of a parent
company and the relationships which exist with the issuer; and (viii)
recognition by management of obligations which may be present or may arise as a
result of public interest questions and preparations to meet such obligations.
Among the factors considered by S&P in assigning bond, note and commercial paper
ratings are the following: (i) trend of earnings and cash flow with allowances
made for unusual circumstances, (ii) stability of the issuer's industry, (iii)
the issuer's relative strength and position within the industry and (iv) the
reliability and quality of management.
<PAGE>
Addresses
Flag Investors Top 50 World
Flag Investors Top 50 Europe
Flag Investors Top 50 Asia
Flag Investors Top 50 USFlag Investors European Mid-Cap Fund
Flag Investors Japanese Equity Fund
Flag Investors US Money Market Fund
Flag Investors Institutional US Money Market Fund
5800 Corporate Drive
Pittsburgh, PA 15237-7010
Investment Manager
Deutsche Fund Management, Inc.
31 West 52nd Street
New York, NY 10019
Investment Advisers
DWS International Portfolio Management GmbH
Grueneburgweg 113-115
60323 Frankfurt am Main, Germany
Deutsche Bank Investment Management Inc.
280 Park Avenue
New York, NY 10017
Distributor
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101
Administrator
Federated Services Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Custodian
Investors Bank & Trust Co.
200 Clarendon Street
Boston, MA 02116
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
PART C. OTHER INFORMATION.
Item 23. Exhibits:
(a) (i) Copy of Articles of Amendment and Restatement of
the Registrant; (3) (ii) Conformed copy of Articles
of Amendment; (9) (iii) Conformed copy of Articles
Supplementary of Registrant; (9) (iv) Conformed copy
of Articles of Amendment Certificate of Correction;
(9)
(b) Copy of By-Laws of the Registrant; (1)
(c) Copy of Specimen Certificate for shares of common stock of the
Registrant; (7)
(d) (i) Copy of Investment Advisory Agreement of the
Registrant; (3)
(ii) Copy of Investment Management Agreement; (5)
(e) (i) Conformed copy of Distributor's Contract
including Exhibits A and B thereto; (6) (ii)
Conformed copy of Exhibit C to the Distributor's
Contract; (9) (iii) Form of Distribution Agreement
including Appendix A and B thereto; + (iv) Conformed
copy of Mutual Funds Sales and Service Agreement; (6)
(f) Not applicable;
(g) (i) Conformed copy of Custodian Agreement between Investors Bank and Trust
and the Registrant; (6)
(ii) Custodian Agreement between Deutsche Portfolios and Investors Bank and
Trust Company; (3)
(iii)Conformed copy of Delegation Agreement between Deutsche Portfolios and
Investors Bank and Trust Company including Appendix A-D; (9)
(h) (i) Conformed copy of Master Agreement for Administration Services between
Federated Services Company and the Registrant; (9)
(ii) Conformed copy of Amended Transfer Agency Services Fee Schedule to Master
Agreement for Administration Services between Federated Services Company
and the Registrant; (10)
- --------------------------------------------
+All exhibits have been filed electronically
1. Response is incorporated by reference to Registrant's Registration
Statement on Form N-1A filed on May 23, 1997. (File Nos. 333-7008 and
811-8227)
3. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 4 on Form N-1A filed on August 1, 1997. (File Nos. 333-7008
and 811-8227)
5. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 6 on Form N-1A filed on September 23, 1997. (File Nos.
333-7008 and 811-8227)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed on April 13, 1998. (File Nos. 333-7008
and 811-8227)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed on September 1, 1998. (File Nos.
333-7008 and 811-8227)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed on November 2, 1998. (File Nos. 333-7008
and 811-8227)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed on August 24, 1999. (File Nos. 333-7008
and 811-8227)
<PAGE>
(iii) Conformed copy of Amended Administrative or
Operational Agency Services Fee Schedule to
Master Agreement for Administration Services between
Federated Services Company and the
Registrant; (10)
(iv) Administration Agreement between Deutsche Portfolios
and IBT Trust Company (Cayman)
Ltd.; (3)
(v) Conformed copy of Fund Accounting Agreement between
IBT Fund Services (Canada) Inc. and
the Registrant; (6)
(vi) Conformed copy of Appendix A-C to Fund Accounting
Agreement between IBT Fund Services
(Canada) Inc. and the Registrant; (9)
(vii) Copy of Fund Accounting Agreement between Deutsche
Portfolios and IBT Funds Services
(Canada) Inc.; (3)
(viii)Conformed copy of Services Agreement; (6)
(ix) Form of Amendment #1 to Exhibit 1 of the
Services Agreement; (9) (i) Copy of Opinion and Consent of
Counsel as to legality of shares being registered; (5) (j) (i)
Conformed copy of consent of Independent Accountants (Deutsche
US Money Market Fund and
Deutsche Institutional US Money Market Fund); (9)
(ii) Conformed copy of consent of Independent
Accountants (Deutsche Top 50 World, Deutsche
Top 50 Europe, Deutsche Top 50 Asia,
Deutsche Top 50 US, Deutsche European
Mid-Cap Fund, Deutsche German Equity Fund,
Deutsche Japanese Equity Fund, Deutsche
Global Bond Fund and Deutsche European Bond
Fund); (9)
(k) Not applicable;
(l) Copy of investment representation letters from
initial shareholders; (5)
(m) (i) Conformed copy of Distribution and Services
Plan; (6)
(ii) Conformed copy of Exhibit C to the Distribution
and Service Plan; (9) (n) Copy of Financial Data Schedules;
(9) (o) Conformed copy of Amended and Restated Multiple Class
Plan including
Exhibit A; (9)
(p) Conformed copy of Power of Attorney. +
Item 24. Persons Controlled by or Under Common Control with Registrant:
None
- --------------------------------------------
+All exhibits have been filed electronically
3. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 4 on Form N-1A filed on August 1, 1997. (File Nos. 333-7008
and 811-8227)
5. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 6 on Form N-1A filed on September 23, 1997. (File Nos.
333-7008 and 811-8227)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed on April 13, 1998. (File Nos. 333-7008
and 811-8227)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed on November 2, 1998. (File Nos. 333-7008
and 811-8227)
<PAGE>
Item 25. Indemnification:
Reference is made to Article EIGHT 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 26. Business and Other Connections of Investment Adviser:
Deutsche Fund Management, Inc. ("DFM"), DWS International Portfolio Management
GmbH ("DWS-IPM") and Deutsche Morgan Grenfell Investment Management
Inc.("DMGIM") are each indirect subsidiaries of Deutsche Bank AG.
Deutsche Funds Holding GmbH ("DFH"), a holding company organized under German
law, 93% owned by Deutsche Bank AG; sole shareholder of DFM (since 1/97); sole
shareholder of DWS-IPM (since 5/97).
Deutsche Bank AG, a publicly-held global financial institution, trading on the
Frankfurt Stock Exchange); sole shareholder of DFH (since 9/94).
Deutsche Bank North America Holding Corp. ("DBNAH"), a holding company organized
under US law, 100% owned by Deutsche Bank AG; sole shareholder of Deutsche Bank
U.S. Financial Markets Holding Corporation.
Deutsche Bank U.S. Financial Markets Holding Corporation, a holding company
organized under US law, 100% owned by DBNAH; sole shareholder of DMGIM.
Brian A. Lee, President and Managing Director of DFM (since 1/97); President and
Chief Operating Officer of Deutsche Bank Trust Company ("DBTC")(prior to 1997).
Christian Strenger, Chairman of the Board of Directors of DFM (since 1/97);
Managing Director/Spokesman of DFH (since 9/94); Managing Director/Spokesman of
DWS-IPM (since 5/97); Managing Director/Spokesman of DWS Deutsche
Gesellschaftfuer Wertpapiersparen mbH ("DWS-DGW)(since 8/91).
Udo Behrenwaldt, Director of DFM (since (5/97); Managing Director of DFH (since
9/94); Manager Director of DWS-IPM (since 5/97); Executive Director of DB
Investment Management, S.A. (since 7/87); Managing Director of DWS-DGW (since
11/75).
Holger Naumann, Director of DFM (since 1/97); Head of Participations at
DWS-DGW(since 12/95); Group Strategy Department at Deutsche Bank AG (prior to
12/95).
Bernd-Albrecht von Maltzan, Director of DFM (since 5/97); Divisional Board
Member of Deutsche Bank AG (since 7/96); Managing Director of Deutsche Morgan
Grenfell in Frankfurt and London (prior to 7/96).
Michael C. Lowengrub, Treasurer of DFM (since 1/97); Treasurer of DBTC (since
4/95); Director and Comptroller Private Banking at Deutsche Bank AG-New York
Branch (since 10/92).
Thomas A. Curtis, Secretary of DFM (since 1/97); Secretary of CB Management
Corp. (since 2/96); Director and Counsel of Deutsche Bank AG-New York
Branch(since 7/95).
Axel-Guenther Benkner, Managing Director of DWS-IPM (since 5/97); Managing
Director of DFH (since 9/94); Managing Director of Deutsche
Vermoegensbildungsgesellschaft mbH (since 12/90); Managing Director of DWS-DGW
(since 2/91).
Heinz-Wilheim Fesser, Senior Portfolio Manager of DWS-IPM (since 5/97); Fixed
Income-Global at DWS-DGW (since 12/87).
Klaus Kaldmorgen, Senior Portfolio Manager of DWS-IPM (since 5/97);
Equities-Global at DWS-DGW (since 12/82).
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).
David Alan Zornitsky, Secretary and Treasurer of DMGIM (since 10/94); Assistant
Vice President at Deutsche Bank Securities Corporation (prior to 10/94).
Item 27. Principal Underwriters:
(a) ICC Distributors, Inc. acts as distributor for Flag Investors
Communications Fund, Inc. (formerly known as Flag Investors
Telephone Income Fund, Inc.), Flag Investors International Fund,
Inc., Flag Investors Emerging Growth Fund, Inc., Flag Investors
Shares Class of Total Return U.S. Treasury Fund, Inc., Flag
Investors Shares Class of Managed Municipal Fund, Inc., Flag
Investors Short-Intermediate Income Fund, Inc. (formerly known as
Flag Investors Intermediate-Term Income Fund, Inc.), Flag
Investors Value Builder Fund, Inc., Flag Investors Real Estate
Securities Fund, Inc., Flag Investors Equity Partners Fund, Inc.,
BT Investment Funds, BT Advisor Funds, BT Pyramid Mutual Funds,
BT Institutional Funds, BT Investment Portfolios, Cash Management
Portfolio, Intermediate Tax Free Portfolio, Tax Free Money
Portfolio, NY Tax Free Money Portfolio, Treasury Money Portfolio,
International Equity Portfolio, Equity 500 Index Portfolio,
Capital Appreciation Portfolio, Asset Management Portfolio, and
Morgan Grenfell Funds, all registered open-end management
investment companies.
<TABLE>
<CAPTION>
<S> <C> <C>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
John Y. Keffer President, --
Two Portland Square ICC Distributors, Inc.
Portland, ME 14101
Sara M. Morris Treasurer, --
Two Portland Square ICC Distributors, Inc.
Portland, ME 14101
David I. Goldstein Secretary, --
Two Portland Square ICC Distributors, Inc.
Portland, ME 14101
Benjamin L. Niles Vice President, --
Two Portland Square ICC Distributors, Inc.
Portland, ME 14101
Margaret J. Fenderson Assistant Treasurer, --
Two Portland Square ICC Distributors, Inc.
Portland, ME 14101
Dana L. Lukens Assistant Secretary, --
Two Portland Square ICC Distributors, Inc.
Portland, ME 14101
Nanette K. Chern Chief Compliance Officer, --
Two Portland Square ICC Distributors, Inc.
Portland, ME 14101
</TABLE>
(c) Not applicable
<PAGE>
Item 28. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of
the following locations:
<TABLE>
<CAPTION>
<S> <C>
Deutsche Funds, Inc. .............. 5800 Corporate Drive
Pittsburgh, PA 15237-7010
ICC Distributors, Inc. ..................... Two Portland Square
(Distributor)............................... Portland, ME 04101
Federated Shareholder Services
Company .................................. P.O. Box 8609
(Transfer Agent)............................ Boston, MA 02266-8609
Federated Services Company.................. Federated Investors Tower
(Administrator)............................. 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Deutsche Fund Management, Inc...............31 West 2nd Street
(Adviser) New York, NY 10019
IBT Fund Services (Canada) Inc..............One First Place
(Fund Accountant)........................... King Street West, Suite 2800
P.O. Box 231
Toronto, Ontario M5X1C8
Investors Bank & Trust Co................... 200 Clarendon Street
(Custodian) Boston, MA 02116
</TABLE>
Item 29. Management Services:
Not applicable
Item 30. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Deutsche Funds, Inc., has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Pittsburgh and Commonwealth
of Pennsylvania, on the 29th day of October, 1999.
DEUTSCHE FUNDS, INC.
BY: /s/ Brian A. Lee
Brian A. Lee, President
October 29, 1999
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME
TITLE
DATE
By: /s/ Brian A. Lee Attorney In Fact October 29, 1999
Brian A. Lee For the Persons
Listed Below
NAME
TITLE
Brian A. Lee* President
(Chief Executive Officer)
Joseph Parascondola* Treasurer
(Principal Financial and
Accounting Officer)
Edward C. Schmults* Director
Robert H. Wadsworth* Director
Werner Walbroel* Director
Richard R. Burt* Director
Christian Strenger* Director
Robert R. Gambee* Secretary
* By Power of Attorney
Exhibit p under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes
and appoints any Corporate Counsel of Federated Administrative Services or its
affiliates, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for them and their names, place and stead, in
any and all capacities, to sign any and all documents to be filed with the
Securities and Exchange Commission on behalf of Deutsche Funds, Inc. pursuant to
the Securities Act of 1933, the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agent, full power and authority to sign and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as each of them might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURES TITLE DATE
/s/Brian A. Lee President January 25, 1999
Brian A. Lee (Principal Executive Officer)
/s/Joseph Parascondola Treasurer January 27, 1999
Joseph Parascondola (Principal Financial
and Accounting Officer)
/s/Edward C. Schmults Director January 25, 1999
Edward C. Schmults
/s/Robert H. Wadsworth Director January 25, 1999
Robert H. Wadsworth
/s/Werner Walbroel Director January 25, 1999
Werner Walbroel
/s/Richard R. Burt Director January 25, 1999
Richard R. Burt
/s/Christian Strenger Director January 25, 1999
Christian Strenger
/s/ Director
G. Richard Stamberger
/s/Robert R. Gambee Secretary January 25, 1999
Robert R. Gambee
</TABLE>
Sworn to and subscribed before me this 13th day of October, 1999
/s/Madaline P. Kelly
Madaline P. Kelly
Notarial Seal
Madaline P. Kelly, Notary Public
Baldwin Boro, Allegheny County
My Commission Expires Feb. 22, 2000
Member, Pennsylvania Association of Notaries
Exhibit e(iii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
DEUTSCHE FUNDS, INC.
DISTRIBUTION AGREEMENT
AGREEMENT made as of the __th day of _________, 1999, by and between
Deutsche Funds, Inc., a Maryland corporation, with its principal office and
place of business at _________________________________________ (the "Fund"), and
ICC Distributors, Inc., a Delaware corporation with its principal office and
place of business at Two Portland Square, Portland, Maine 04101 (the
"Distributor").
WHEREAS, the Fund is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company, may issue its shares of common stock (the
"Shares") in separate series and classes and continuously offers for sale its
Shares to the public; and
WHEREAS, the Distributor is registered under the Securities
Exchange Act of 1934, as amended ("1934 Act"), as a broker-dealer and is engaged
in the business of selling shares of registered investment companies either
directly to purchasers or through other securities dealers;
WHEREAS, the Fund offers Shares in one or more series as listed in
Appendix A hereto (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Section 16 hereof, being herein referred to as a "Series," and collectively as
the "Series") and the Fund offers shares of one or more classes (each such class
together with all other classes subsequently established by a Series being
herein referred to as a "Class," and collectively as the "Classes");
WHEREAS, the Fund desires that the Distributor offer the
Shares of each Series and Class thereof to the public and the
Distributor is willing to provide those services on the terms and conditions set
forth in this Agreement in order to promote the growth of the Fund and
facilitate the distribution of the Shares;
NOW THEREFORE, for and in consideration of the mutual covenants
and agreements contained herein, the Fund and the Distributor hereby agree as
follows:
SECTION 1. DELIVERY OF DOCUMENTS AND APPOINTMENT
(a) The Fund has delivered to the Distributor properly certified or
authenticated copies of its Articles of Incorporation and Bylaws (collectively,
as amended from time to time, "Articles of Incorporation"), the Fund's
Notification of Registration filed with the U.S. Securities and Exchange
Commission ("SEC") pursuant to Section 8(a) of the 1940 Act on Form N-8A under
the 1940 Act, the Fund's Registration Statement and all amendments thereto filed
with the SEC pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), or the 1940 Act (the "Registration Statement") and its current
Prospectuses and Statements of Additional Information (collectively, as
currently in effect and as amended or supplemented, the "Prospectus") and shall
promptly furnish the Distributor with all amendments of or supplements to the
foregoing, each properly certified or authenticated. In addition, the Fund shall
furnish the Distributor with properly certified or authenticated copies of all
documents, notices and reports filed with the SEC.
(b) The Fund has delivered to the Distributor certified copies of the
resolutions of the Board of Directors (the "Board") authorizing the appointment
of the Distributor as distributor and approving this Agreement.
(c) The Fund hereby appoints the Distributor as its principal underwriter and
distributor to sell its Shares to the public and hereby agrees during the term
of this Agreement to sell its Shares to the Distributor upon the terms and
conditions herein set forth.
SECTION 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to act as
its principal underwriter and distributor except that the rights given under
this Agreement to the Distributor shall not apply to Shares issued in connection
with the merger, consolidation or reorganization of any other investment company
with the Fund; the Fund's acquisition by purchase or otherwise of all or
substantially all of the assets or stock of any other investment company; or the
reinvestment in Shares by the Fund's shareholders of dividends or other
distributions or any other offering by the Fund of securities to its
shareholders.
SECTION 3. PURCHASE OF SHARES; OFFERING OF SHARES
(a) The Distributor shall have the right to buy from the Fund the Shares needed
to fill unconditional orders for unsold Shares of the Fund as shall then be
effectively registered under the Securities Act placed with the Distributor by
investors or securities dealers or depository institutions or other financial
intermediaries acting as agent for their customers or on their own behalf.
Alternatively, the Distributor may act as the Fund's agent, to offer, and to
solicit offers to subscribe to, unsold Shares of the Fund as shall then be
effectively registered under the Securities Act. The Distributor will promptly
forward all orders and subscriptions for Shares of the Fund. The price which the
Distributor shall pay for Shares purchased by it from the Fund shall be the net
asset value, determined as set forth in Section 3(c) hereof, used in determining
the public offering price on which the orders are based. The price at which the
Distributor shall offer and sell Shares to investors shall be the public
offering price, as set forth in Section 3(b) hereof. The Distributor may sell
Shares to securities dealers, depository institutions or other financial
intermediaries acting as agent for their customers that have entered into
agreements with the Distributor pursuant to Section 9 hereof or acting on their
own behalf. The Fund reserves the right to sell its Shares directly to investors
through subscriptions received by the Fund, but no such direct sales shall
affect the sales charges due to the Distributor hereunder.
(b) The public offering price of the Shares of the Fund, i.e., the price per
Share at which the Distributor or selected dealers or selected agents (each as
defined in Section 11 hereof) may sell Shares to the public or to those persons
eligible to invest in Shares as described in the Fund's Prospectus, shall be the
public offering price determined in accordance with the then currently effective
Prospectus of the Fund or Class thereof under the Securities Act, relating to
such Shares, but not to exceed the net asset value at which the Distributor,
when acting as principal, is to purchase such Shares, plus, in the case of
Shares for which an initial sales charge is assessed, an initial charge equal to
a specified percentage or percentages of the public offering price of the Shares
as set forth in the current Prospectus relating to the Shares. In the case of
Shares for which an initial sales charge may be assessed, Shares may be sold to
certain classes of persons at reduced sales charges or without any sales charge
as from time to time set forth in the current Prospectus relating to the Shares.
The Fund will advise the Distributor of the net asset value per Share at each
time as the net asset value per Share shall have been determined by the Fund.
(c) The net asset value per Share of each Series or Class thereof shall be
determined by the Fund, or an agent of the Fund, as of the close of the New York
Stock Exchange, Inc. ("NYSE") or such other time as set forth in the applicable
Prospectus on the Fund business day in accordance with the method set forth in
the Prospectus and guidelines established by the Board.
(d) The Fund reserves the right to suspend the offering of Shares of any Class
at any time in the absolute discretion of the Board, and upon notice of such
suspension the Distributor shall cease to offer Shares of the Fund or Classes
thereof specified in the notice.
(e) The Fund, or any agent of the Fund designated in writing to the Distributor
by the Fund, shall be promptly advised by the Distributor of all purchase orders
for Shares received by the Distributor and all subscriptions for Shares obtained
by the Distributor as agent shall be directed to the Fund for acceptance and
shall not be binding until accepted by the Fund. Any order or subscription may
be rejected by the Fund; provided, however, that the Fund will not arbitrarily
or without reasonable cause refuse to accept or confirm orders or subscriptions
for the purchase of Shares. The Fund (or its agent) will confirm orders and
subscriptions upon their receipt, will make appropriate book entries and, upon
receipt by the Fund (or its agent) of payment thereof, will issue such Shares in
uncertificated or certificated (if permitted) form pursuant to the instructions
of the Distributor. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES
(a) Any of the outstanding Shares of the Fund may be tendered for redemption at
any time, and the Fund agrees to redeem or repurchase the Shares so tendered in
accordance with its obligations as set forth in the Fund's Articles of
Incorporation and the Prospectus relating to the Shares. The price to be paid to
redeem or repurchase the Shares of the Fund shall be equal to the net asset
value calculated in accordance with the provisions of Section 3(c) hereof less,
in the case of Shares for which a deferred sales charge is assessed, a deferred
sales charge equal to a specified percentage or percentages of the net asset
value of those Shares as from time to time set forth in the Prospectus relating
to those Shares or their cost, whichever is less. Shares for which a deferred
sales charge may be assessed and that have been outstanding for a specified
period of time may be redeemed without payment of a deferred sales charge as
from time to time set forth in the Prospectus relating to those Shares.
(b) The Fund or its designated agent shall pay (i) the total amount of the
redemption price consisting of the redemption price less any applicable deferred
sales charge to the redeeming shareholder or its agent and (ii) except as may be
otherwise required by the Conduct Rules (the "Rules") of the National
Association of Securities Dealers, Inc. (the "NASD") and any interpretations
thereof, any applicable deferred sales charges to the Distributor in accordance
with the Distributor's instructions on or before the third business day
subsequent to each calendar month-end.
(c) Redemption of Shares or payment therefor may be suspended at times when the
NYSE is closed for any reason other than its customary weekend or holiday
closings, when trading thereon is restricted, when an emergency exists as a
result of which disposal by the Fund of securities owned by the Fund is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
SEC so permits.
SECTION 5. DUTIES AND REPRESENTATIONS OF THE DISTRIBUTOR
(a) The Distributor shall use reasonable efforts to sell Shares of the Fund upon
the terms and conditions contained herein and in the then current Prospectus.
The Distributor shall devote reasonable time and effort to effect sales of
Shares but shall not be obligated to sell any specific number of Shares. The
services of the Distributor to the Fund hereunder are not to be deemed
exclusive, and nothing herein contained shall prevent the Distributor from
entering into like arrangements with other investment companies so long as the
performance of its obligations hereunder is not impaired thereby.
(b) In selling Shares of the Fund, the Distributor shall comply with the
requirements of all federal and state laws relating to the sale of the Shares.
None of the Distributor, any selected dealer, any selected agent or any other
person is authorized by the Fund to give any information or to make any
representations other than as is contained in the Fund's Prospectus or any
advertising materials or sales literature specifically approved in writing by
the Fund or its agents.
(c) The Distributor shall adopt and follow procedures for the confirmation of
sales to investors and selected dealers or selected agents, the collection of
amounts payable by investors and selected dealers or selected agents on such
sales, and the cancellation of unsettled transactions, as may be necessary to
comply with the requirements of the NASD and any other applicable
self-regulatory organization.
(d) The Distributor will perform its duties hereunder under the supervision of
and in accordance with the directives of the Board. The Distributor will perform
its duties hereunder in accordance with the Fund's Articles of Incorporation and
Prospectuses and with the instructions and directions of the Board and will
conform to and comply with the requirements of the 1940 Act, the Securities Act
and other applicable laws.
(e) The Distributor shall provide the Board with a written report of the amounts
expended in connection with this Agreement as requested by the Board.
(f) The Distributor shall be responsible for reviewing and making such filings,
as required, of advertisements ands sales literature relating to the Fund that
have been furnished to the Distributor.
(g) The Distributor represents and warrants to the Fund that:
(i) It is a corporation duly organized and existing and
in good standing under the laws of the State of
Delaware and it is duly qualified to carry on its
business in the State of Maine;
(ii) It is empowered under applicable laws and by its
Articles of Incorporation to enter into and perform
this Agreement;
(iii) All requisite corporate proceedings have been taken
to authorize it to enter into and perform this
Agreement;
(iv) It has and will continue to have access to the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement;
(v) This Agreement, when executed and delivered, will
constitute a legal, valid and binding obligation of
the Distributor, enforceable against the Distributor
in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws
of general application affecting the rights and
remedies of creditors and secured parties;
(vi) It is registered under the 1934 Act with the SEC as a
broker-dealer, it is a member in good standing of the
NASD, it will abide by the rules and regulations of
the NASD, and it will notify the Fund if its
membership in the NASD is terminated or suspended;
(vii) The performance by the Distributor of its obligations
hereunder does not and will not contravene any
provision of its Articles of Incorporation; and
(viii) It has taken all reasonable business steps to ensure
that any system or software used in the operation of
its business that is an any way related to the
services provided herein: (A) manages and manipulates
data involving all dates from the 20th and 21st
centuries without material, functional or data
abnormality related to such dates; (B) has user
interfaces and data fields formatted to distinguish
between dates from the 20th and 21st centuries; and
(C) represents all data to include indications of the
millennium, century, and decade, as well as the
actual year.
(h) Notwithstanding anything in this Agreement, including the Appendices, to the
contrary, the Distributor makes no warranty or representation as to the number
of selected dealers or selected agents with which it has entered into agreements
in accordance with Section 11 hereof, as to the availability of any Shares to be
sold through any selected dealer, selected agent or other intermediary or as to
any other matter not specifically set forth herein.
SECTION 6. DUTIES AND REPRESENTATIONS OF THE FUND
(a) The Fund shall furnish to the Distributor copies of all financial statements
and other documents to be delivered to shareholders or investors at least two
business days prior to such delivery and shall furnish the Distributor copies of
all other financial statements, documents and other papers or information which
the Distributor may reasonably request for use in connection with the
distribution of Shares. The Fund shall make available to the Distributor the
number of copies of its Prospectuses as the Distributor shall reasonably
request.
(b) The Fund shall take, from time to time, subject to the approval of its Board
and any required approval of its shareholders, all action necessary to fix the
number of authorized Shares (if such number is not limited) and to register the
Shares under the Securities Act, to the end that there will be available for
sale the number of Shares as reasonably may be expected to be sold pursuant to
this Agreement.
(c) The Fund shall register or qualify its Shares for sale under the securities
laws of the various states of the United States and other jurisdictions
("States") as the Fund, in its sole discretion shall determine. Any registration
or qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. The Distributor shall furnish such information and other
material relating to its affairs and activities as may be required by the Fund
in connection with such registration or qualification.
(d) The Fund represents and warrants to the Distributor that:
(i) It is a corporation duly organized and existing and in good standing
under the laws of the State of Maryland;
(ii) It is empowered under applicable laws and by its Articles of
Incorporation to enter into and perform this Agreement;
(iii) All proceedings required by the Articles of Incorporation have been
taken to authorize it to enter into and perform its duties under this Agreement;
(iv) It is registered as an open-end management investment company with the
SEC under the 1940 Act;
(v) All Shares, when issued, shall be validly issued, fully paid and
non-assessable;
(vi) This Agreement, when executed and delivered, will constitute a legal,
valid and binding obligation of the Fund, enforceable against the Fund in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties;
(vii) The performance by the Fund of its obligations hereunder does not and
will not contravene any provision of its Articles of Incorporation.
(viii) The Fund's Registration Statement is currently effective and will
remain effective with respect to all Shares of the Fund's Series and Classes
thereof being offered for sale;
(ix) It will use its best efforts to ensure that its Registration Statement
and Prospectuses have been or will be, as the case may be, carefully prepared in
conformity with the requirements of the Securities Act and the rules and
regulations thereunder;
(x) It will use its best efforts to ensure that (A) its Registration
Statement and Prospectuses contain or will contain all statements required to be
stated therein in accordance with the Securities Act and the rules and
regulations thereunder, (B) all statements of fact contained or to be contained
in the Registration Statement or Prospectuses are or will be true and correct at
the time indicated or on the effective date as the case may be and (C) neither
the Registration Statement nor any Prospectus, when they shall become effective
or be authorized for use, will include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading to a purchaser of Shares;
(xi) It will from time to time file such amendment or amendments to its
Registration Statement and Prospectuses as, in the light of then-current and
then-prospective developments, shall, in the opinion of its counsel, be
necessary in order to have the Registration Statement and Prospectuses at all
times contain all material facts required to be stated therein or necessary to
make any statements therein not misleading to a purchaser of Shares ("Required
Amendments");
(xii) It shall not file any amendment to its Registration Statement or
Prospectuses without giving the Distributor reasonable advance notice thereof
(which shall be at least three Fund business days); provided, however, that
nothing contained in this Agreement shall in any way limit the Fund's right to
file at any time such amendments to its Registration Statement or Prospectuses,
of whatever character, as the Fund may deem advisable, such right being in all
respects absolute and unconditional; and
(xiii) It will use its best efforts to ensure that (A) any amendment to its
Registration Statement or Prospectuses hereafter filed will, when it becomes
effective, contain all statements required to be stated therein in accordance
with the 1940 Act and the rules and regulations thereunder, (B) all statements
of fact contained in the Registration Statement or Prospectuses will, when it
becomes effective, be true and correct at the time indicated or on the effective
date as the case may be and (C) no such amendment, when it becomes effective,
will include an untrue statement of a material fact or will omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading to a purchaser of the Shares.
SECTION 7. STANDARD OF CARE
(a) The Distributor shall use its best judgment and efforts in rendering
services to the Fund under this Agreement but shall be under no duty to take any
action except as specifically set forth herein or as may be specifically agreed
to by the Distributor in writing. The Distributor shall not be liable to the
Fund or any of the Fund's shareholders for any error of judgment or mistake of
law, for any loss arising out of any investment, or for any action or inaction
of the Distributor in the absence of bad faith, willful misfeasance or gross
negligence in the performance of the Distributor's duties or obligations under
this Agreement or by reason of the Distributor's reckless disregard of its
duties and obligations under this Agreement
(b) The Distributor shall not be liable to the Fund for any action taken or
failure to act in good faith reliance upon:
(i) the advice of the Fund or of counsel, who may be counsel to the Fund or
counsel to the Distributor;
(ii) any oral instruction which the Distributor receives
and which it reasonably believes in good faith was
transmitted by the person or persons authorized by
the Board to give such oral instruction (the
Distributor shall have no duty or obligation to make
any inquiry or effort of certification of such oral
instruction);
(iii) any written instruction or certified copy of any
resolution of the Board, and the Distributor may rely
upon the genuineness of any such document or copy
thereof reasonably believed in good faith by the
Distributor to have been validly executed; or
(iv) any signature, instruction, request, letter of
transmittal, certificate, opinion of counsel,
statement, instrument, report, notice, consent,
order, or other document reasonably believed in good
faith by the Distributor to be genuine and to have
been signed or presented by the Fund or other proper
party or parties;
and the Distributor shall not be under any duty or obligation to inquire into
the validity or invalidity or authority or lack thereof of any statement, oral
or written instruction, resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice, consent, order, or
any other document or instrument which the Distributor reasonably believes in
good faith to be genuine.
(c) The Distributor shall not be responsible or liable for any failure or delay
in performance of its obligations under this Agreement caused, directly or
indirectly, by circumstances beyond its reasonable control including, without
limitation, acts of civil or military authority, national emergencies, labor
difficulties (other than those related to the Distributor's employees), fire,
mechanical breakdowns, flood or catastrophe, acts of God, insurrection, war,
riots or failure of the mails, transportation, communication or power supply.
SECTION 8. INDEMNIFICATION
(a) The Fund will indemnify, defend and hold the Distributor, its employees,
agents, directors and officers and any person who controls the Distributor
within the meaning of Section 15 of the Securities Act or Section 20 of the 1934
Act ("Distributor Indemnitees") free and harmless from and against any and all
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such claims,
demands, actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith) which any Distributor Indemnitee may incur, under the
Securities Act, under the securities laws of the various States or under common
law or otherwise based upon any alleged untrue statement of a material fact
contained in the Fund's Registration Statement or Prospectuses, based upon any
alleged omission to state a material fact required to be stated in any one
thereof or necessary to make the statements in any one thereof not misleading,
or based upon any filing made with the regulatory authorities of any State
unless such statement or omission was made in reliance upon, and in conformity
with, information furnished in writing to the Fund in connection with the
preparation of the Registration Statement, exhibits to the Registration
Statement or filings made with the regulatory authorities of any State by or on
behalf of the Distributor ("Distributor Claims").
After receipt of the Distributor's notice of termination
under Section 13(e) of this Agreement, the Fund shall indemnify and hold each
Distributor Indemnitee free and harmless from and against any Distributor Claim;
provided, that the term Distributor Claim for purposes of this sentence shall
mean any Distributor Claim related to the matters for which the Distributor has
requested amendment to the Fund's Registration Statement and for which the Fund
has not filed a Required Amendment, regardless of with respect to such matters
whether any statement in or omission from the Registration Statement was made in
reliance upon, or in conformity with, information furnished to the Fund by or on
behalf of the Distributor.
(b) The Fund may assume the defense of any suit brought to enforce any
Distributor Claim and may retain counsel of good standing chosen by the Fund and
approved by the Distributor, which approval shall not be withheld unreasonably.
The Fund shall advise the Distributor that it will assume the defense of the
suit and retain counsel within ten (10) days of receipt of the notice of the
claim. If the Fund assumes the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional counsel that they
retain. If the Fund does not assume the defense of any such suit, or if
Distributor does not approve of counsel chosen by the Fund or has been advised
that it may have available defenses or claims that are not available to or
conflict with those available to the Fund, the Fund will reimburse any
Distributor Indemnitee named as defendant in such suit for the reasonable fees
and expenses of any counsel that person retains. A Distributor Indemnitee shall
not settle or confess any claim without the prior written consent of the Fund,
which consent shall not be unreasonably withheld or delayed.
(c) The Distributor will indemnify, defend and hold the Fund and its several
officers and directors (collectively, the "Fund Indemnitees"), free and harmless
from and against any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, reasonable counsel fees and other
expenses of every nature and character (including the cost of investigating or
defending such claims, demands, actions, suits or liabilities and any reasonable
counsel fees incurred in connection therewith), but only to the extent that such
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses result from, arise out of or
are based upon:
(i) any alleged untrue statement of a material fact
contained in the Fund's Registration Statement or
Prospectus or any alleged omission of a material fact
required to be stated or necessary to make the
statements therein not misleading, if such statement
or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in
writing in connection with the preparation of the
Registration Statement or Prospectus by or on behalf
of the Distributor; or
(ii) any act of, or omission by, the Distributor or its
sales representatives that does not conform to the
standard of care set forth in Section 7 of this
Agreement (collectively, "Fund Claims").
(d) The Distributor may assume the defense of any suit brought to enforce any
Fund Claim and may retain counsel of good standing chosen by the Distributor and
approved by the Fund, which approval shall not be withheld unreasonably. The
Distributor shall advise the Fund that it will assume the defense of the suit
and retain counsel within ten (10) days of receipt of the notice of the claim.
If the Distributor assumes the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional counsel that they
retain. If the Distributor does not assume the defense of any such suit, or if
the Fund does not approve of counsel chosen by the Distributor or has been
advised that it may have available defenses or claims that are not available to
or conflict with those available to the Distributor, the Distributor will
reimburse any Fund Indemnitee named as defendant in such suit for the reasonable
fees and expenses of any counsel that person retains. A Fund Indemnitee shall
not settle or confess any claim without the prior written consent of the
Distributor, which consent shall not be unreasonably withheld or delayed.
(e) The Fund's and the Distributor's obligations to provide indemnification
under this Section is conditioned upon the Fund or the Distributor receiving
notice of any action brought against a Distributor Indemnitee or Fund
Indemnitee, respectively, by the person against whom such action is brought
within twenty (20) days after the summons or other first legal process is
served. Such notice shall refer to the person or persons against whom the action
is brought. The failure to provide such notice shall not relieve the party
entitled to such notice of any liability that it may have to any Distributor
Indemnitee or Fund Indemnitee except to the extent that the ability of the party
entitled to such notice to defend such action has been materially adversely
affected by the failure to provide notice.
(f) The provisions of this Section and the parties' representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Distributor
Indemnitee or Fund Indemnitee and shall survive the sale and redemption of any
Shares made pursuant to subscriptions obtained by the Distributor. The
indemnification provisions of this Section will inure exclusively to the benefit
of each person that may be a Distributor Indemnitee or Fund Indemnitee at any
time and their respective successors and assigns (it being intended that such
persons be deemed to be third party beneficiaries under this Agreement).
(g) The Distributor agrees promptly to notify the Fund of
the commencement of any litigation or proceeding of which
it becomes aware arising out of or in any way connected with the issuance or
sale of Shares. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceeding of which it becomes aware arising
out of or in any way connected with the issuance or sale of its Shares.
(h) Nothing contained herein shall require the Fund to
take any action contrary to any provision of its Articles of
Incorporation or any applicable statute or regulation or shall require the
Distributor to take any action contrary to any provision of its Articles of
Incorporation or Bylaws or any applicable statute or regulation; provided,
however, that neither the Fund nor the Distributor may amend their Articles of
Incorporation and Bylaws, respectively, in any manner that would result in a
violation of a representation or warranty made in this Agreement, except if
required by any applicable statute or regulation, and then only after notice to
the other party.
(i) Nothing contained in this section shall be construed to
protect the Distributor against any liability to the Fund
or the security holders of the Fund to which the Distributor would otherwise be
subject by reason of its failure to satisfy the standard of care set forth in
Section 7 of this Agreement.
SECTION 9. NOTIFICATION TO THE DISTRIBUTOR
The Fund shall advise the Distributor immediately: (i) of any request
by the SEC for amendments to the Fund's Registration Statement or Prospectus or
for additional information; (ii) in the event of the issuance by the SEC of any
stop order suspending the effectiveness of the Fund's Registration Statement or
any Prospectus or the initiation of any proceedings for that purpose; (iii) of
the happening of any material event which makes untrue any statement made in the
Fund's then current Registration Statement or Prospectus or which requires the
making of a change in either thereof in order to make the statements therein not
misleading; and (iv) of all action of the SEC with respect to any amendments to
the Fund's Registration Statement or Prospectus which may from time to time be
filed with the Commission under the 1940 Act or the Securities Act.
SECTION 10. COMPENSATION; EXPENSES
(a) In consideration of the Distributor's services in connection with the
distribution of Shares of the Fund and each Class thereof, the Distributor shall
receive: (i) any applicable sales charge assessed upon investors in connection
with the purchase of Shares; (ii) from the Fund, any applicable contingent
deferred sales charge ("CDSC") assessed upon investors in connection with the
redemption of Shares; (iii) from the Fund, the distribution service fees with
respect to the Shares of those Classes as designated in Appendix A for which a
plan under Rule 12b-1 under the 1940 Act (a "Plan") is effective (the
"Distribution Fee"); and (iv) from the Fund, the shareholder service fees with
respect to the Shares of those Classes as designated in Appendix A (the "Service
Fee"). The Distribution Fee and Service Fee shall be accrued daily by each
applicable Fund or Class thereof and shall be paid monthly as promptly as
possible after the last day of each calendar month but in any event on or before
the fifth (5th) Fund business day after month-end, at the rate or in the amounts
set forth in Appendix A and, as applicable, the Plan(s). The Fund grants and
transfers to the Distributor a general unperfected lien and security interest in
any and all securities and other assets of the Fund now or hereafter maintained
in an account at the Fund's custodian on behalf of the Fund to secure any
Distribution Fees and Service Fees owed the Distributor by the Fund under this
Agreement.
(b) The Fund shall cause its transfer agent (the "Transfer Agent") to withhold,
from redemption proceeds payable to holders of Shares of the Series and the
Classes thereof, all CDSCs properly payable by the shareholders in accordance
with the terms of the applicable Prospectus and shall cause the Transfer Agent
to pay such amounts over to the Distributor as promptly as possible after each
month end.
(c) Except as specified in Sections 8 and 10(a) of this Agreement, the
Distributor shall be entitled to no compensation or reimbursement of expenses
for the services provided by the Distributor pursuant to this Agreement. The
Distributor may receive compensation from the Fund's investment advisors, other
service providers or their respective affiliates (collectively, the "Advisor")
for its services hereunder or for additional services all as may be agreed to
between the Advisor and the Distributor. Notwithstanding anything in this
Agreement to the contrary, to the extent the Distributor receives compensation
from the Advisor that is disclosed to the Board, the Fund will indemnify, defend
and hold each Distributor Indemnitee free and harmless from and against any and
all claims, demands, actions, suits, judgments, liabilities, losses, damages,
costs, charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such claims,
demands, actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith) related in any way to such payment.
(d) The Fund shall be responsible and assumes the obligation for payment of all
its expenses, including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of the Registration Statement and
Prospectuses (including but not limited to the expense of setting in type the
Registration Statement and Prospectuses and printing sufficient quantities for
internal compliance, regulatory purposes and for distribution to current
shareholders).
(e) The Fund shall bear the cost and expenses (i) of the registration of its
Shares for sale under the Securities Act; (ii) of the registration or
qualification of its Shares for sale under the securities laws of the various
States; (iii) if necessary or advisable in connection therewith, of qualifying
the Fund, or its Series or the Classes thereof (but not the Distributor) as an
issuer or as a broker or dealer, in such States as shall be selected by the
Fund; and (iv) payable to each State for continuing registration or
qualification therein until the Fund decides to discontinue registration or
qualification. The Distributor shall pay all expenses relating to the
Distributor's broker-dealer qualification.
SECTION 11. SELECTED DEALER AND SELECTED AGENT AGREEMENTS
(a) The Distributor shall have the right to enter into sub-distribution
agreements with securities dealers of its choice ("selected dealers") and with
depository institutions and other financial intermediaries of its choice
("selected agents") for the sale of Shares and to fix therein the portion of the
sales charge, if any, that may be allocated to the selected dealers or selected
agents; provided, that all such agreements shall be in substantially the form of
agreement as set forth in Appendix B hereto or such other form as approved by
the Fund. Shares of each Series or Class thereof shall be resold by selected
dealers or selected agents only at the public offering price(s) set forth in the
Prospectus relating to the Shares. The Distributor shall offer and sell Shares
of the Fund only to such selected dealers as are members in good standing of the
NASD. The Distributor shall have the right to enter into shareholder servicing
agreements with financial intermediaries of its choice; provided, that all such
agreements shall be in substantially the form of agreement as approved by the
Fund.
(b) The Distributor will supervise the Fund's relationship with selected dealers
and agents and may make payments to those selected dealers and agents in such
amounts as the Distributor may determine from time to time in its sole
discretion. The amount of payments to selected dealers and agents by the
Distributor may be reviewed by the Board from time to time; provided, however,
that no payment by the Distributor to any selected dealer or agent with respect
to a Share shall exceed the amount of payments made to the Distributor hereunder
with respect to that Share.
SECTION 12. CONFIDENTIALITY
The Distributor agrees to treat all records and other information related
to the Fund as proprietary information of the Fund and, on behalf of itself and
its employees, to keep confidential all such information, except that the
Distributor may:
(i) prepare or assist in the preparation of periodic reports to
shareholders and regulatory bodies such as the SEC;
(ii) provide information typically supplied in the investment
company industry to companies that track or report price,
performance or other information regarding investment
companies; and
(iii) release such other information as approved in writing by the
Fund, which approval shall not be unreasonably withheld;
provided, however, that the Distributor may release any information regarding
the Fund without the consent of the Fund if the Distributor reasonably believes
that it may be exposed to civil or criminal legal proceedings for failure to
comply, when requested to release any information by duly constituted
authorities or when so requested by the Fund.
SECTION 13. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each series or class
listed in Appendix A. Upon effectiveness of this Agreement, it shall supersede
all previous agreements between the parties hereto covering the subject matter
hereof insofar as such Agreement may have been deemed to relate to the Fund.
(b) This Agreement shall continue in effect with respect to a Series Fund for a
period of one year from its effectiveness and thereafter shall continue in
effect with respect to the Series until terminated; provided, that continuance
is specifically approved at least annually (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Fund and (ii) by a vote of
a majority of Directors of the Fund (I) who are not parties to this Agreement or
interested persons of any such party (other than as Directors of the Fund) and
(II) with respect to each Class of a Series for which there is an effective
Plan, who do not have any direct or indirect financial interest in any such Plan
applicable to the Class or in any agreements related to the Plan, cast in person
at a meeting called for the purpose of voting on such proposal.
(c) This Agreement may be terminated at any time with respect to a Series or
Class, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Series or, with respect to
each Class for which there is an effective Plan, a majority of Directors of the
Fund who do not have any direct or indirect financial interest in any such Plan
or in any agreements related to the Plan, on 60 days' written notice to the
Distributor or (ii) by the Distributor on 60 days' written notice to the Fund.
(d) This Agreement shall automatically terminate upon its assignment and upon
the termination of the Distributor's membership in the NASD.
(e) The obligations of Sections 5(e), 6(d), 8, 9 and 10 of this Agreement shall
survive any termination of this Agreement with respect to a Series or Class
thereof.
SECTION 14. NOTICES
Any notice required or permitted to be given hereunder by the Distributor
to the Fund or the Fund to the Distributor shall be deemed sufficiently given if
personally delivered or sent by telegram, facsimile or registered, certified or
overnight mail, postage prepaid, addressed by the party giving such notice to
the other party at the last address furnished by the other party to the party
giving such notice, and unless and until changed pursuant to the foregoing
provisions hereof each such notice shall be addressed to the Fund or the
Distributor, as the case may be, at their respective principal places of
business.
SECTION 15. ACTIVITIES OF THE DISTRIBUTOR
Except to the extent necessary to perform the Distributor's obligations
hereunder, nothing herein shall be deemed to limit or restrict the Distributor's
right, or the right of any of the Distributor's employees, agents, officers or
directors who may also be a director, officer or employee of the Fund, or
affiliated persons of the Fund to engage in any other business or to devote time
and attention to the management or other aspects of any other business, whether
of a similar or dissimilar nature, or to render services of any kind to any
other corporation, Fund, firm, individual or association.
SECTION 16. ADDITIONAL FUNDS AND CLASSES
In the event that the Fund establishes one or more series of Shares or
one or more classes of Shares after the effectiveness of this Agreement, such
series of Shares or classes of Shares, as the case may be, shall become Series
and Classes under this Agreement upon approval of this Agreement by the Fund
with respect to the series of Shares or class of Shares and the execution of an
amended Appendix A reflecting the applicable names and terms. The Distributor
may elect not to make any such series or classes subject to this Agreement.
SECTION 17. MISCELLANEOUS
(a) The Distributor shall not be liable to the Fund and the Fund shall not be
liable to the Distributor for consequential damages under any provision of this
Agreement except that Distributor Claims, as that term is used in Section 8(a)
of this Agreement, shall include consequential damages related to or based upon
any filing made with the regulatory authorities of any State.
(b) No provisions of this Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by the
Distributor and the Fund.
(c) This Agreement shall be governed by, and the provisions of this Agreement
shall be construed and interpreted under and in accordance with, the laws of the
State of Delaware.
(d) This Agreement constitutes the entire agreement between the Distributor and
the Fund and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(e) This Agreement may be executed by the parties hereto on any number of
counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(f) If any part, term or provision of this Agreement is held to be illegal, in
conflict with any law or otherwise invalid, the remaining portion or portions
shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(g) Section headings in this Agreement are included for convenience only and are
not to be used to construe or interpret this Agreement.
(h) No affiliated person, employee, agent, officer or director of the
Distributor shall be liable at law or in equity for the Distributor's
obligations under this Agreement.
(i) The Fund shall be liable to the Distributor only with respect to those
Series and Classes of the Fund, and the Distributor shall look solely to the
Fund to satisfy any liability of a Series or Class thereof to the Distributor.
(j) Each of the undersigned warrants and represents that they have full power
and authority to sign this Agreement on behalf of the party indicated and that
their signature will bind the party indicated to the terms hereof.
(k) The terms "vote of a majority of the outstanding voting securities,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the 1940 Act.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
DEUTSCHE FUNDS, INC.
By:
Name:
Secretary
ICC DISTRIBUTORS, INC.
By:
John Y. Keffer
President
<PAGE>
- A5 -
DEUTSCHE FUNDS, INC.
DISTRIBUTION AGREEMENT
Appendix A
as of _________________, 1999
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Distribution Service
Series Class Fee Fee
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<PAGE>
DEUTSCHE FUNDS, INC.
DISTRIBUTION AGREEMENT
Appendix B
[Form of Sub-Distribution Agreement]
SUB-DISTRIBUTION AGREEMENT
[Date]
Ladies and Gentlemen:
ICC Distributors, Inc. ("ICC"), a Delaware corporation, serves as
distributor (the "Distributor") of the Deutsche Funds, Inc. (collectively, the
"Funds," individually, a "Fund"). The Funds are open-end investment companies
(or series thereof) registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" as used herein refers to each
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1.Participating Dealer. You are hereby designated a Participating Dealer
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Fund such orders and the payment made therefore, (ii) to
accept orders for the redemption of Shares and to transmit to the Fund such
orders and all additional material, including any certificates for Shares, as
may be required to complete the redemption and (iii) to assist shareholders with
the foregoing and other matters relating to their investments in each Fund, in
each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
the Shares.
2.Limitation of Authority. No person is authorized to make any
representations concerning the Fund or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3.Compensation. As compensation for such services, you will look solely to
the Distributor, and you acknowledge that the Funds shall have no direct
responsibility for any compensation. In addition to any sales charge payable to
you by your customer pursuant to a Prospectus, the Distributor will pay you no
less often than annually a shareholder processing and service fee (as we may
determine from time to time in writing) computed as a percentage of the average
daily net assets maintained with each Fund during the preceding period by
shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $______ in the fund family for which you
are to be compensated, and provided that in all cases your name is transmitted
with each shareholder's purchase order.
4.Prospectus and Reports. You agree to comply with the provisions contained
in the Securities Act governing the distribution of prospectuses to persons to
whom you offer Shares. You further agree to deliver, upon our request, copies of
any amended Prospectus of the relevant Fund to purchasers whose Shares you are
holding as record owner and to deliver to such persons copies of the annual and
interim reports and proxy solicitation materials of the Funds. We agree to
furnish to you as many copies of each Prospectus, annual and interim reports and
proxy solicitation materials as you may reasonably request.
5.Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times, will comply with the Conduct Rules (formerly the
Rules of Fair Practice) of the NASD, including, without limitation, the
provisions of Rule 2830 (formerly Section 26) of such Rules. You agree that you
will not combine customer orders to reach breakpoints in commission for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of a particular class of Shares or by us in writing. You also agree that you
will place orders immediately upon their receipt and will not withhold any order
so as to profit therefrom. In determining the amount payable to you hereunder,
we reserve the right to exclude any sales which we reasonably determine are not
made in accordance with the terms of the relevant prospectus and provisions of
the Agreement.
6.Blue Sky. The Funds have registered an indefinite number of Shares under
the Securities Act. The Funds intend to make appropriate notice filings in
certain states where such filing is required. We will inform you as to the
states or other jurisdictions in which we believe the Shares are eligible for
sale under the respective securities laws of such states. You agree that you
will offer Shares to your customers only in those states where such Shares are
eligible to be sold. We assume no responsibility or obligation as to your right
to sell Shares in any jurisdiction.
7.Authority of Fund. Each Fund shall have full authority to take such
action as it deems advisable in respect of all matters pertaining to the
offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8.Record Keeping. You will (i) maintain all records required by law to be
kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9.Liability. The Distributor shall be under no liability to you except for
lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provisions of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10.Termination. This Agreement may be terminated by either party, without
penalty, upon ten days' written notice to the other party and shall
automatically terminate in the event of its assignment, as defined in the
Investment Company Act. This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as such phrase is defined in the Investment Company Act) and who have no direct
or indirect financial interest in the operation of the Distribution Agreement
between such Fund and the Distributor or by the vote of a majority of the
outstanding voting securities of the Fund.
<PAGE>
11.Communications. All communications other than this agreement and those
pertaining to this agreement should be sent to the address listed below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
[TA Address]
If the foregoing is in accordance with your understanding
of our agreement, please sign and return to us both copies
of this Agreement to:
[----------]
c/o ICC Distributors, Inc.
Attn: Dealer Services
P.O. Box 7558
Portland, Maine 04101
ICC Distributors, Inc.
By: Benjamin L. Niles
Vice President
Confirmed and accepted:
Firm Name:
By:
Signature
Printed Name and Title
Date:
Address:
Clears Through:
Phone No.:
