102
[Logo of Flag Investors]
Top 50 World
(formerly Deutsche Top 50 World)
Class A Shares and Class B Shares
Prospectus -- December 31, 1999, as revised January 18, 2000
This mutual fund (the "Fund") seeks high capital appreciation, and as a
secondary objective, reasonable dividend income.
The Fund offers shares through securities dealers and through financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. This Prospectus describes Flag Investors
Class A Shares ("Class A Shares") and Flag Investors Class B Shares ("Class B
Shares") of the Fund. These separate classes give you a choice as to sales
charges and Fund expenses. (Refer to the section on sales charges and to the
Application. Also refer to the Investors' Guide on How to Buy, Redeem, and
Exchange Shares, which is incorporated by reference and contains additional
information on how to buy and redeem shares.)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Investment Objective, Strategies, Performance and Risk.. 1
Fees and Expenses....................................... 3
Investment Strategies................................... 4
Portfolio Investments................................... 4
Investment Risks........................................ 5
The Fund's Net Asset Value.............................. 6
How to Buy Shares....................................... 7
How to Redeem Shares.................................... 7
Telephone Transactions.................................. 8
Sales Charges........................................... 8
How to Choose the Class That is Right for You........... 10
Dividends and Taxes..................................... 11
Fund Management......................................... 11
Financial Information................................... 12
</TABLE>
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.
INVESTMENT OBJECTIVE, STRATEGIES, PERFORMANCE AND RISK
Objectives and Strategies
The Fund is part of a series of Flag Investors Funds, Inc. The 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 relates to
the Fund and its corresponding Portfolio. For a table of the Fund and its
corresponding Portfolio, see "Organization" in the Fund's Statement of
Additional Information. The Fund does not represent a complete investment
program, and may not be suitable for all investors.
Investment Objective: The investment objective of the Fund is high capital
appreciation, and as a secondary objective, reasonable dividend income.
The Fund generally owns equity securities of 50 companies. The portfolio
manager selects companies considered to be of outstanding quality in their
particular field based on some or all of the following attributes:
. strong market position within its market;
. profitability, predictability and duration of earnings growth, reflected in
sound balance sheet ratios and financial statements;
. high quality management with an orientation toward strong, long-term
earnings;
. long-range strategic plans in place;
. generally publicly-held with broad distribution of financial information
related to its operations.
Strategy: The Fund invests at least 65% of its total assets in equity
securities (primarily common and preferred stock) 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"):
. strong population growth in emerging markets;
. aging population in industrialized nations, leading to growing demands for
the products and services of healthcare and related industries;
. transition to an information and communications society;
. growing demand for brand names;
. growing oil/energy consumption worldwide.
Risk Profile
All mutual funds take investment risks. Therefore, it is possible to lose
money by investing in the Fund. The primary factors that may reduce the Fund's
returns are listed below.
. Stock market risks -- the value of securities rise and fall;
. Sector risks -- the possibility that certain sectors may underperform other
sectors or the market as a whole;
. Liquidity risks -- the foreign securities in which the Fund invests may
trade infrequently and may be subject to greater fluctuation in price than
other securities;
. Currency risks -- fluctuations in the exchange rate between the U.S. dollar
and foreign currencies;
. Risks of investing in specific regions -- the Fund may invest a significant
portion of its assets in a particular foreign country or geographic region,
which makes the Fund subject to greater currency risk and more susceptible
to adverse impact from actions of foreign governments;
. Risks of foreign investing -- the foreign markets in which the Fund invests
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;
. Risks of investing in emerging market countries -- prices of emerging market
securities in which the Fund invests can be significantly more volatile than
prices of securities in developed countries; and
. Risks of non-diversification -- as a non-diversified Fund, the Fund is
allowed to invest a higher percentage of its assets among fewer issuers of
portfolio securities than diversified Funds. This increases the Fund's risks
by magnifying the impact (positively or negatively) that any one issuer has
on the Fund's share price and performance. Despite this ability to invest in
fewer issuers, the Fund generally attempts to maintain exposure to a broad
number of issuers.
The Fund cannot guarantee that it will achieve its investment objective.
The shares of the Fund 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.
Fund Performance
The following unaudited performance information gives you an indication of the
risks of investing in the Fund by comparing its performance with a broad measure
of market performance. Past performance of the Fund does not necessarily predict
future performance. For more current performance information, call 1-800-767-
3524.
Bar Chart. The bar chart represents the 1998 and 1999 calendar year
performance of Class A Shares of the Fund (which is the share class with the
longest operating history). The bar chart does not reflect the maximum sales
charge imposed on Class A Shares. If these charges or fees had been included,
the returns would have been lower. Following the bar chart is the best and worst
calendar quarter performance for Class A Shares during these two calendar year
periods.
Total Return. The Average Annual Total Returns for Class A and B Shares of the
Fund are compared to an appropriate broad-based securities market index for the
periods shown. Unlike the performance information shown in the bar chart, the
Fund's 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 Fund's
performance. You cannot invest directly in an index.
Annual Total Returns (for calendar years ended December 31)--Class A Shares
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of Top 50 World as of the calendar
year-end for each of two years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 10.00% up to 30.00%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1999. The light gray shaded chart features two distinct
vertical bars, shaded in charcoal, and visually representing by height the total
return percentages for the calendar year stated directly at its base. The
calculated total return percentage for Class A Shares of the Fund for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1998 through 1999. The percentages noted are: 27.71% and 30.50%,
respectively.
<TABLE>
<S> <C> <C>
Best quarter (4Q98) 23.20%
Worst quarter (3Q98) -11.89%
</TABLE>
Average Annual Total Return*
(for the periods ended December 31, 1999)
<TABLE>
<CAPTION>
Since Start of
1 Year Performance**
<S> <C> <C>
Class A Shares 23.34% 21.49%
Class B Shares 24.51% 23.28%
MSCI World Index 24.93% 23.17%
</TABLE>
* 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
Class B Shares: May 4, 1998
FEES AND EXPENSES
This table describes the fees and expenses including those of the corresponding
Portfolio that you may pay if you buy and hold Class A Shares or Class B Shares
of the Fund.
<TABLE>
<CAPTION>
Class
A Class B
<S>
<C> <C>
Shareholder
Fees:
(fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) 5.50% None Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)
0.00%* 5.00%**
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) (as a percentage of offering price)
None None
Redemption Fee (as a percentage of amount redeemed, if applicable)
None None
Exchange Fee
None None
Annual Fund Operating
Expenses:
(expenses that are deducted from Fund assets) (as a percentage of average net
assets) Management Fee 1.00% 1.00% Distribution and/or Service (12b-1) Fees
0.25% 1.00% Other Expenses 9.31% 10.29% Total Annual Fund Operating Expenses
(before fee waivers and expense reimbursements) 10.56% 12.29% Total
Reimbursements of Fund Expenses 8.96% 9.94% Total Net Annual Fund Operating
Expenses (after fee waivers and expense reimbursements)*** 1.60% 2.35% </TABLE>
* A maximum 1% contingent deferred sales charge may be imposed on redemptions
within one year of certain shares purchased without an initial sales charge.
See "Sales Charges."
** The contingent deferred sales charge declines from the maximum amount to 1%
in the sixth year, and 0% thereafter.
*** The Manager has contractually agreed to waive its fees and reimburse
expenses of the Fund through December 31, 2000 to the extent necessary to
maintain the Fund's expense ratio at the level indicated as "Total Net
Annual Fund Operating Expenses (after reimbursements)."
Example:
This Example is intended to help you compare the cost of investing in the
Fund's Class A and B Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A and B 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 Fund's Class A and B Shares' operating expenses remain
the same during the period. Each of the examples assumes that the fee waivers
and expense reimbursements to the Fund's operating expenses are in effect for
only the first year of the 1, 3, 5 or 10-year periods. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3years 5 years 10 years
<S> <C> <C> <C> <C>
Class A $704 $2,654 $4,394 $7,964
Class B
Assuming redemption fee $738 $2,845 $4,746 $8,476
Assuming no redemption fee $238 $2,581 $4,594 $8,476
</TABLE>
INVESTMENT STRATEGIES
A summary of the Fund's principal investment strategy has been provided above.
The Fund also uses these additional investment strategies.
The Adviser monitors the companies it selects for the Fund 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 by the Fund are domiciled or have their primary stock
market listings.
The Adviser will consider the geographic market focus of the Fund in
considering companies proposed for investment.
Hedging
The Fund uses hedging transactions to attempt to reduce specific risks. For
example, to protect the Fund against circumstances that would normally cause the
Fund's portfolio securities to decline in value, the Fund may buy or sell a
derivative contract that would normally increase in value under the same
circumstances. The Fund may also attempt to hedge by using forward contracts,
combinations of different derivatives contracts, or derivatives contracts and
securities. The Fund's ability to hedge may be limited by the costs of the
derivatives contracts. The Fund 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 Fund, (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 Fund.
Temporary Defensive Investments
The Fund may temporarily depart from its principal investment strategy by
investing its 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. The Fund 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
Fund to give up greater investment returns to maintain the safety of principal,
that is, the original amount invested by shareholders.
PORTFOLIO INVESTMENTS
The Fund invests principally in securities of companies that are listed on a
stock exchange or trade on a recognized, regulated market open to the public.
Following are descriptions of the different types of securities that may
comprise the principal securities of the Fund, as explained above in the Fund's
investment strategy. For purposes of the Fund's investments, convertible bonds
and bonds with warrants are considered equity securities, not fixed income
securities. The Fund may invest in each type of security and its related
subtypes.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it 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 Fund 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.
Foreign Securities
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. 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 Fund may
enter into spot currency trades. In a spot trade, the Fund agrees to exchange
one currency for another at the current exchange rate. The Fund 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 Fund's exposure to currency risks.
Derivative Contracts
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.
INVESTMENT RISKS
Following are descriptions of the different types of risks that an investment
in the Fund may entail, as previously summarized under "Risk Profile."
Stock Market Risks
The value of equity securities in the Fund's portfolios will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolios will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
Sector Risks
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
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 Fund 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 Fund's performance. Infrequent trading of
securities may also lead to an increase in their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
Currency Risks
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.
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.
Risks of Investing in Specific Countries and Regions
The Fund invests a significant portion of its assets in specific regions or
countries, and therefore it is 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, the Fund has invested in Asian countries, which have experienced sudden
and unexpected disruptions in their governments and economies with adverse
consequences for investors.
Risks of Foreign Investing
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.
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 Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
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.
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
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.
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.
Derivative Contracts
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 Fund to the effect of
leverage, and thereby increase the Fund's exposure to the market and loss that
it otherwise would have had if it had not entered into these transactions.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares is
based on the Fund's net asset value per share. When you buy Class A Shares, the
price you pay may be increased by a sales charge. When you redeem any class of
shares, the amount you receive may be reduced by a sales charge. Read the
section on sales charges for details on how and when these charges may or may
not be imposed.
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern
Time) on each day the Exchange is open for business. Because the Fund owns
foreign securities that trade in foreign markets on days the Exchange is closed,
the value of a Fund's assets may change on days you cannot purchase, redeem or
exchange shares. On the day before certain holidays are observed, the primary
trading markets for the Fund may close early, and the Fund also may close early.
You may call the Fund at 1-800-767-3524 for additional information about whether
the Fund will close early before a particular holiday. The Net Asset Value is
calculated by subtracting the liabilities attributable to a class from its
proportionate share of the Fund's assets and dividing the result by the
outstanding shares of the class. Because the different classes have different
distribution or service fees, their net asset values may differ.
The value of shares of the Fund is generally determined based upon the market
value of the portfolio securities held by the underlying Portfolios. When price
quotes for a particular security are not readily available, investments are
priced at their "fair value" using procedures approved by the Fund's Board of
Directors.
You may buy or redeem shares on any day the New York Stock Exchange is open
for business (a "Business Day"). If your order is entered before the net asset
value per share is determined for that day, the price you pay or receive will be
based on that day's net asset value per share. If your order is entered after
the net asset value per share is determined for that day, or after the Fund has
closed early before a holiday, the price you pay or receive will be based on the
next Business Day's net asset value per share.
The following sections (as well as the Investors' Guide on How to Buy, Redeem,
and Exchange Shares) describe how to buy and redeem shares.
HOW TO BUY SHARES
You may buy any class of the Fund's shares through your securities dealer or
through any financial institution that is authorized to act as a shareholder
servicing agent. Contact them for details on how to enter and pay for your
order. You may also buy shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form includes
instructions and is available with this Prospectus.
You may invest in Class A Shares unless you are a defined contribution plan
with assets of $75 million or more.
Your purchase order may not be accepted if the sale of Fund shares has been
suspended or if it is determined that your purchase would be detrimental to the
interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments must
be at least $100. The following are exceptions to these minimums:
. If you are investing in an IRA account, your initial investment may be as
low as $1,000.
. If you are a shareholder of any other Flag Investors fund, your initial
investment in this Fund may be as low as $500.
. If you are a participant in the Fund's Automatic Investing Plan, your
initial investment may be as low as $250. Your subsequent investments may be
as low as $100 if you participate in the monthly program or $250 if you
participate in the quarterly program. Refer to the section on the Fund's
Automatic Investing Plan for details.
. There is no minimum investment requirement for qualified retirement plans
such as 401(k), pension or profit sharing plans.
Investing Regularly
You may make regular investments in the Fund through any of the following
methods. If you wish to enroll in any of these programs or if you need any
additional information, complete the appropriate section of the Application Form
or contact your securities dealer, your servicing agent, or the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or quarterly
investment in any class of shares. The amount you decide upon will be withdrawn
from your checking account using a pre-authorized check. When the Transfer Agent
receives the money, it will be invested in the class of shares selected at that
day's offering price. Either you or the Fund may discontinue your participation
upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and capital
gains distributions will be reinvested in additional Fund shares at net asset
value. You may elect to receive your distributions in cash or to have your
distributions invested in shares of other Flag Investors funds. To make either
of these elections or to terminate automatic reinvestment, complete the
appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase either class of shares through
a Systematic Purchase Plan. Contact your securities dealer or servicing agent
for details.
HOW TO REDEEM SHARES
You may redeem any class of the Fund's shares through your securities dealer
or servicing agent. Contact them for details on how to enter your order and for
information as to how you will be paid. If you have an account with the Fund
that is in your name, you may also redeem shares by contacting the Transfer
Agent by mail or (if you are redeeming less than $50,000) by telephone. The
Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may require
the following documents before they redeem your shares:
. A letter of instructions specifying your account number and the number of
shares or dollar amount you wish to redeem. All owners of the shares must
sign the letter exactly as their names appear on the account.
. If you are redeeming more than $50,000, you need a guarantee of your
signature. You can obtain one from most banks or securities dealers.
. The Fund does not issue share certificates. 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.
. Any additional documents that may be required if your account is in the name
of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on shares you redeem will be paid on the next dividend
payable date. If you have redeemed all of your shares by that time, the dividend
will be paid to you by check whether or not that is the payment option you have
selected.
If you redeem sufficient shares to reduce your investment to $500 or less, the
Fund has the power to redeem the remaining shares after giving you 60 days'
notice. The Fund reserves the right to redeem shares in kind under certain
circumstances.
If you own Fund shares having a value of at least $10,000, you may arrange to
have some of your shares redeemed monthly or quarterly under the Fund's
Systematic Withdrawal Plan. Each redemption under this plan involves all the tax
and sales charge implications normally associated with Fund redemptions. Contact
your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
TELEPHONE TRANSACTIONS
If your shares are in an account with the Transfer Agent, you may redeem them
in any amount up to $50,000 or exchange them for shares in another Flag
Investors fund by calling the Transfer Agent on any Business Day between the
hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are automatically entitled
to telephone transaction privileges but you may specifically request that no
telephone redemptions or exchanges be accepted for your account. You may make
this election when you complete the Application Form or at any time thereafter
by completing and returning documentation supplied by the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that telephoned instructions are genuine. These procedures include requiring you
to provide certain personal identification information when you open your
account and before you effect each telephone transaction. You may be required to
provide additional telecopied instructions. If these procedures are employed,
neither the Fund nor the Transfer Agent will bear any liability for following
telephone instructions that it reasonably believes to be genuine. Your telephone
transaction request will be recorded.
During periods of extreme economic or market changes, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by mail.
If you hold shares in certificate form, you may not exchange or redeem them by
telephone.
SALES CHARGES
Purchase Price
The price you pay to buy shares will be the Fund's offering price, which is
calculated by adding any applicable sales charges to the net asset value per
share of the class you are buying. The amount of any sales charge included in
your purchase price will be according to the following schedule:
<TABLE>
<CAPTION>
Class A Sales
Charge as % of
Offering Net Amount Class B
Amount of Purchase Price Invested Sales
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% None
$50,000 - $99,999 4.50% 4.71% None
$100,000 - $249,999 3.50% 3.63% None
$250,000 - $499,999 2.50% 2.56% None
$500,000 - $999,999 2.00% 2.04% None
$1,000,000 and over None None None
</TABLE>
Although you do not pay an initial sales charge when you invest $1,000,000 or
more in Class A Shares or when you buy any amount of Class B Shares, you may pay
a sales charge when you redeem your shares. Refer to the section on redemption
price for details. Your securities dealer may be paid a commission at the time
of your purchase.
The sales charge you pay on your current purchase of Class A Shares may be
reduced under the circumstances listed below.
Rights of Accumulation. If you are purchasing additional Class A Shares of
this Fund or Class A shares of any other Flag Investors fund or if you already
have investments in Class A shares, you may combine the value of your purchases
with the value of your existing investments to determine whether you qualify for
a reduced sales charge. (For this purpose your existing investments will be
valued at the higher of cost or current value.) You may also combine your
purchases and investments with those of your spouse and your children under the
age of 21 for this purpose. You must be able to provide sufficient information
to verify that you qualify for this right of accumulation.
Letter of Intent. If you anticipate making additional purchases of Class A
Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to initially
purchase at least 5% of the total. When you make each purchase during the
period, you will pay the sales charge applicable to their combined value. If, at
the end of the 13-month period, the total value of your purchases is less than
the amount you indicated, you will be required to pay the difference between the
sales charges you paid and the sales charges applicable to the amount you
actually did purchase. Some of the shares you own will be redeemed to pay this
difference.
Purchases at Net Asset Value. You may buy Class A Shares without paying a
sales charge under the following circumstances:
. If you are reinvesting some or all of the proceeds of a redemption of Class A
Shares made within the last 90 days.
. If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a description of the
conditions).
. If you are a current or retired Fund Director, a director, an employee or a
member of the immediate family of an employee of any of the following (or
their respective affiliates): the Fund's distributor, the Investment Manager
or a broker- dealer authorized to sell shares of the Fund.
. If you are buying shares in any of the following types of accounts: - A
qualified retirement plan; - A Flag Investors fund payroll savings plan
program; - A fiduciary or advisory account with a bank, bank trust
department,
. registered investment advisory company, financial planner or securities
dealer purchasing shares on your behalf. To qualify for this provision you
must be paying an account management fee for the fiduciary or advisory
services. Your securities dealer or servicing agent may charge you an
additional fee if you buy shares in this manner.
Purchases by Exchange
You may exchange Class A or B shares of any other Flag Investors fund for an
equal dollar amount of Class A or B Shares, respectively, without payment of the
sales charges described above or any other charge. You may not exchange Class A
shares of a Flag Investors money market fund into the Fund without payment of
the sales charge unless you acquired those shares through a prior exchange
subject to a sales charge. You may enter both your redemption and purchase
orders on the same Business Day or, if you have already redeemed the shares of
the other fund, you may enter your purchase order within 90 days of the
redemption. The Fund may modify or terminate these offers of exchange upon 60
days' notice.
You may request an exchange through your securities dealer or servicing agent.
Contact them for details on how to enter your order. If your shares are in an
account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
The amount of any sales charge deducted from your redemption price will be
determined according to the following schedule.
<TABLE>
<CAPTION>
Sales Charge as a
Percentage of the Dollar
Amount Subject to Charge
Class A Sales Class B Sales
Charge Charge
(as % of Cost (as % of Cost
Years Since Purchase or Value) or Value)
<S> <C> <C>
First 1.00%* 5.00%
Second 0.50%* 4.00%
Third None 3.00%
Fourth None 3.00%
Fifth None 2.00%
Sixth None 1.00%
Seventh and Thereafter None None
</TABLE>
* You will pay a sales charge when you redeem Class A Shares only if your shares
were purchased at net asset value because they were part of an investment of
$1 million or more. The 0.50% charge only applies to Class A Shares purchased
on or after January 18, 2000.
Determination of Sales Charge. The sales charge applicable to your redemption
is calculated in a manner that results in the lowest possible rate:
. No sales charge will be applied to shares you own as a result of reinvesting
dividends or distributions.
. If you have purchased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
. If you acquired your shares through an exchange of shares of another Flag
Investors fund, the period of time you held the original shares will be
combined with the period of time you held the shares being redeemed to
determine the years since purchase. If you bought your shares prior to January
18, 2000, you will pay the sales charge in effect at the time of your original
purchase.
. The sales charge is applied to the lesser of the cost of the shares or their
value at the time of your redemption.
Waiver of Sales Charge. You may redeem shares without paying a sales charge
under any of the following circumstances:
. If you are exchanging your shares for shares of another Flag Investors fund
of the same class.
. If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
. If your redemption represents a distribution from a Systematic Withdrawal
Plan. This waiver applies only if the annual withdrawals under your Plan are
12% or less of your share balance.
. If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
- The account is registered in your name either individually, as a joint
tenant with rights of survivorship, as a participant in community
property or as a minor child under the Uniform Gifts or Uniform Transfers
to Minors Acts.
- Either you or your representative notifies your securities dealer,
servicing agent or the Transfer Agent that such circumstances exist.
. If you are redeeming Class A Shares, your original investment was at least
$3,000,000 and your securities dealer has agreed to return to the Fund's
distributor any payments received when you bought your shares.
Automatic Conversion of Class B Shares. Your Class B Shares, along with any
reinvested dividends or distributions associated with those shares, will be
automatically converted to Class A Shares seven years after your purchase. If
you purchased your shares prior to January 18, 2000, your shares will be
converted to Class A Shares eight years after your purchase. This conversion
will be made on the basis of the relative net asset values of the classes and
will not be a taxable event to you.
HOW TO CHOOSE THE CLASS THAT IS RIGHT FOR YOU
Your decision as to which class of the Fund's shares is best for you should be
based upon a number of factors including the amount of money you intend to
invest and the length of time you intend to hold your shares.
If you choose Class A Shares, you will pay a sales charge when you buy your
shares, but the amount of the charge declines as the amount of your investment
increases. You will pay lower expenses while you hold the shares and, except in
the case of investments of $1,000,000 or more, no sales charge if you redeem
them.
If you choose Class B Shares, you will pay no sales charge when you buy your
shares, but your annual expenses will be higher than Class A Shares. You will
pay a sales charge if you redeem your shares within six years of purchase, but
the amount of the charge declines the longer you hold your shares and, at the
end of seven years, your shares convert to Class A Shares, thus eliminating the
higher expenses.
In general, if you intend to invest more than $50,000, your combined sales
charges and expenses are lower with Class A Shares. If you intend to invest less
than $50,000 and expect to hold your shares for more than seven years, your
combined sales charges and expenses are lower with Class B Shares.
Your securities dealer is paid a fee when you buy shares. In addition, your
securities dealer is paid an annual fee as long as you hold your shares. For
Class A and B Shares, this fee begins when you purchase your shares. Your
securities dealer or servicing agent may receive different levels of
compensation depending upon which class of shares you buy.
Distribution Plans
The Fund has adopted plans under Rule 12b-1 that allow the Fund to pay your
securities dealer or shareholder servicing agent distribution and other fees for
the sale of its shares and for shareholder service. Class A Shares pay an annual
shareholder servicing fee equal to 0.25% of average daily net assets. Class B
Shares pay an annual distribution fee equal to 0.75% of average daily net assets
of the respective class and an annual shareholder servicing fee equal to 0.25%
of average daily net assets of the respective class. Because these fees are paid
out of net assets on an on-going basis, they will, over time, increase the cost
of your investment and may cost you more than paying other types of sales
charges.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of its
taxable net investment income in the form of annual dividends and to distribute
taxable net capital gains on an annual basis.
Taxes
The following summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its income and capital gains.
The dividends and distributions you receive are subject to federal, state and
local taxation, depending on your tax situation. Distributions you receive from
the Fund may be taxable whether or not you reinvest them. Each sale or exchange
of the Fund's shares is a taxable event.
More information about taxes is in the Statement of Additional Information.
Please contact your tax advisor regarding your specific questions about federal,
state and local income taxes.
FUND MANAGEMENT
A Board of Directors governs the Fund, and a Board of Trustees governs the
Portfolio. The Board of Trustees selects the Manager, Deutsche Fund Management,
Inc. (DFM). The Manager is responsible for managing the Portfolio's assets,
including buying and selling portfolio securities. However, the Manager has
delegated daily management of the Portfolio's assets to the Adviser, who is paid
by the Manager and not by the Portfolio. The Manager and Adviser are registered
investment advisers. The Adviser of the Portfolio is DWS International Portfolio
Management GmbH (DWS). The address for the Manager is 280 Park Avenue, New York,
NY 10017. The address for DWS is Grueneburgweg 113-115, 60323 Frankfurt am Main,
Germany.
The Fund may withdraw its investment from the Portfolio at any time if the
Fund's 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 and the Adviser are subsidiaries of Deutsche Bank AG, a major
global banking institution. With total assets the equivalent of US $874.8
billion and 90,850 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 the Portfolio.
Other subsidiaries of Deutsche Bank AG include Deutsche Fonds Holding GmbH
(DFH), a company with limited liability organized under the laws of Germany. 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 200 mutual funds, having aggregate assets under
management of more than the equivalent of US $83.7 billion as of June 30, 1999.
DFH, along with its subsidiaries, employs approximately 698 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 23.9% 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: best fund manager for 1-, 3- and 5-year periods. These awards were given
to fund managers having 10 or more funds registered for sale in Germany, based
on the manager with the highest number of funds ranked first within various
categories of investment 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 these events took
place. As a result of the plea, however, absent an order from the SEC, DFM and
DWS may not be able to continue to provide advisory services to the Fund. 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 Manager
Following is the portfolio manager who is primarily responsible for the
day-to-day management of the Portfolio that is the underlying investments of the
Fund. The portfolio manager has served as such since the inception of the
Portfolio in October 1997.
Mr. Klaus Kaldemorgen has 16 years experience as an investment manager. He
joined the DWS Group in 1982 as Senior Investment Officer, Head of the Global
Equity Team, DWS Group, Investment Group of Deutsche Bank. Mr. Kaldemorgen
supervises funds holding assets under management of EUR 3.6 billion ($3.6
billion) 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.
Management and Advisory Fees
The Manager receives an annual fee of 1.00% based on the average daily net
assets of the underlying Portfolio in which the Fund invests. The Manager pays
the Adviser a portion of this fee. The Manager has agreed to waive its fee and
reimburse expenses of the Fund and Portfolio in order to maintain the Fund's
total operating expenses (other than extraordinary expenses) at not more than
the following percentages of average annual net assets of the Share classes
through December 31, 2000: 1.60% for Class A Shares; and 2.35% for Class B
Shares.
FINANCIAL INFORMATION
The Financial Highlights will help you understand the Fund's financial
performance since its 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 Fund, assuming reinvestment
of any dividends and capital gains.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's audited financial statements, is included in the Annual
Report for the fiscal year ended August 31, 1999. The Annual Report accompanies
the Fund's Statement of Additional Information.
The financial information is presented for the fiscal year ended August 31,
1999 under the name of the Fund in effect at that time (Deutsche Funds, Inc.).
FINANCIAL HIGHLIGHTS
Selected data for a Class A share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
For the
Year For the Period
Ended Ended/1/
August
31, August 31,
1999 1998
<S>
<C> <C>
Net asset value at beginning of period $
12.35 $ 12.50
Investment
Operations:
Net investment income
0.01 0.01
Net realized and unrealized gain (loss) on investments, futures contracts and
5.18 (0.16)
foreign currency allocated from corresponding Deutsche
Portfolio
Increase (decrease) from investment operations
5.19 (0.15)
Distributions to
Shareholders:
Dividends from net investment income
(0.00)/2/ --
Distributions from net realized gains
(0.19) --
Total distributions
(0.19) --
Net asset value at end of period $
17.35 $ 12.35
Total Return (based on net asset value)/3/
42.19% (1.20)%*
Ratios and Supplemental
Data:
Net assets, end of period (000's) $
2,776 $ 181
Ratios to Average Net
Assets:
Expenses/4/
1.60% 1.60%**
Net investment income (loss)/4/
0.13% 0.13%**
Portfolio turnover of corresponding Deutsche Portfolio
79% 125%*
</TABLE>
1 Commencement of operations...........................................10/2/97
2 Amount rounds to less than $0.01.
3 Total Return based on net asset value, excluding transaction charges, assumes
a purchase of common stock at net asset value at the beginning of each
period, reinvestment of distributions at net asset value and a redemption on
the last day of the period, also at net asset value. During the period, total
return would have been lower had certain expenses not been reimbursed by the
Manager.
4 Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
Expenses to average net assets.......................... 10.56% 127.49%**
Net investment income (loss) to average net assets...... (8.83)% (125.76)%**
* Not annualized
** Annualized
FINANCIAL HIGHLIGHTS
Selected data for a Class B share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
For the
Year For the Period
Ended Ended/1/
August
31, August 31,
1999 1998
<S>
<C> <C>
Net asset value at beginning of period $
11.08 $ 12.50
Investment
operations:
Net investment loss
(0.02) (0.01)
Net realized and unrealized gain (loss) on investments, futures contracts and
4.56 (1.41)
foreign currency allocated from corresponding Deutsche
Portfolio
Increase (decrease) from investment operations
4.54 (1.42)
Distributions to
Shareholders:
Dividends from net investment income
(0.00)2 --
Distributions from net realized gains
(0.19) --
Total distributions
(0.19) --
Net asset value at end of period $
15.43 $ 11.08
Total Return (based on net asset value)/3/
41.14% (11.36)%*
Ratios and Supplemental
Data:
Net assets, end of period (000's) $
2,131 $ 90
Ratios to average net
assets:
Expenses/4/
2.35% 2.35%**
Net investment loss/4/
(0.64)% (0.84)%**
Portfolio turnover of corresponding Deutsche Portfolio
79% 125%*
</TABLE>
1 Commencement of operations.............................................5/4/98
2 Amount rounds to less than $0.01.
3 Total Return based on net asset value, excluding transaction charges, assumes
a purchase of common stock at net asset value at the beginning of each
period, reinvestment of distributions at net asset value and a redemption on
the last day of the period, also at net asset value. During the period, total
return would have been lower had certain expenses not been reimbursed by the
Manager.
4 Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
Expenses to average net assets....................... 12.29% 128.24%**
Net investment income (loss) to average net assets... (10.58)% (126.73)%**
* Not annualized
** Annualized
[Logo of Flag Investors]
Flag Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7010
(800) 767-3524
A Statement of Additional Information (SAI) dated December 31, 1999, as revised
on January 18, 2000, is incorporated by reference into this prospectus as is an
Investors' Guide on How to Buy, Redeem, and Exchange Shares containing
additional information on how to buy and redeem shares. Additional information
about the Fund's investments is contained in the Fund's SAI and Annual and
SemiAnnual Reports to shareholders as they become available. The Annual Report's
Investment Review discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, the Annual Report, Semi-Annual Report and other information
without charge, and make inquiries, call your investment professional or the
Fund at 1-800-767-3524.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
Investment Company Act File No. 811-8227
Cusip 33832F796
Cusip 33832F788
G02179-13
TOP50WPRO
(01/2000)
[Logo of Flag Investors]
Top 50 Europe
(formerly Deutsche Top 50 Europe)
Class A Shares, Class B Shares and Class C Shares
Prospectus -- December 31, 1999, as revised January 18, 2000
This mutual fund (the "Fund") seeks high capital appreciation, and as a
secondary objective, reasonable dividend income.
The Fund offers shares through securities dealers and through financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. This Prospectus describes Flag Investors
Class A Shares("Class A Shares"), Flag Investors Class B Shares ("Class B
Shares") and Flag Investors Class C Shares ("Class C Shares") of the Fund. These
separate classes give you a choice as to sales charges and Fund expenses. (Refer
to the section on sales charges and to the Application. Also refer to the
Investors' Guide on How to Buy, Redeem and Exchange Shares, which is
incorporated by reference and contains additional information on how to buy and
redeem shares.)
TABLE OF CONTENTS
Investment Objective, Strategies, Performance and Risk.. 1
Fees and Expenses....................................... 3
Investment Strategies................................... 4
Portfolio Investments................................... 5
Investment Risks........................................ 6
The Fund's Net Asset Value.............................. 7
How to Buy Shares...................................... 7
How to Redeem Shares.................................... 8
Telephone Transactions.................................. 9
Sales Charges........................................... 9
How to Choose the Class That is Right for You.......... 11
Dividends and Taxes..................................... 12
Fund Management......................................... 12
Financial Information................................... 13
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.
Investment Objective, Strategies, Performance and Risk
Objectives and Strategies
The Fund is part of a series of Flag Investors Funds, Inc. The 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
Fund and its corresponding Portfolio. For a table of the Fund and its
corresponding Portfolio, see "Organization" in the Fund's Statement of
Additional Information. The Fund does not represent a complete investment
program, and may not be suitable for all investors.
Investment Objective: The investment objective of the Fund is high capital
appreciation, and as a secondary objective, reasonable dividend income.
The Fund generally owns equity securities of 50 companies. The portfolio
manager selects companies considered to be of outstanding quality in their
particular field based on some or all of the following attributes:
. strong market position within its market;
. profitability, predictability and duration of earnings growth, reflected in
sound balance sheet ratios and financial statements;
. high quality management with an orientation toward strong, long-term
earnings;
. long-range strategic plans in place;
. generally publicly-held with broad distribution of financial information
related to its operations.
Strategy: The Fund invests at least 65% of its total assets in equity
securities (primarily common and preferred stocks) of companies located or
having a business focus in Europe. The Fund selects companies with above-average
potential for capital appreciation. 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 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 also may select companies that have restructuring potential along
with strong value-oriented management strategies.
Risk Profile
All mutual funds take investment risks. Therefore, it is possible to lose
money by investing in the Fund. The primary factors that may reduce the Fund's
returns are listed below.
. Stock market risks -- the value of securities rise and fall;
. Sector risks -- the possibility that certain sectors may underperform other
sectors or the market as a whole;
. Liquidity risks -- the foreign securities in which the Fund invests may
trade infrequently and may be subject to greater fluctuation in price than
other securities;
. Currency risks -- fluctuations in the exchange rate between the U.S. dollar
and foreign currencies;
. Risks of investing in specific regions -- the Fund may invest a significant
portion of its assets in a particular foreign country or geographic region,
which makes the Fund subject to greater currency risk and more susceptible
to adverse impact from actions of foreign governments;
. Risks of foreign investing -- the foreign markets in which the Fund invests
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;
. Risks of investing in emerging market countries -- prices of emerging market
securities in which the Fund invests can be significantly more volatile than
prices of securities in developed countries; and
. Risks of non-diversification -- as a non-diversified Fund, the Fund is
allowed to invest a higher percentage of its assets among fewer issuers of
portfolio securities than diversified Funds. This increases the Fund's risks
by magnifying the impact (positively or negatively) that any one issuer has
on the Fund's share price and performance. Despite this ability to invest in
fewer issuers, the Fund generally attempts to maintain exposure to a broad
number of issuers.
The Fund cannot guarantee that it will achieve its investment objective.
The shares of the Fund 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.
Fund Performance
The following unaudited performance information gives you an indication of the
risks of investing in the Fund by comparing its performance with a broad measure
of market performance. Past performance of the Fund does not necessarily predict
future performance. For more current performance information, call 1-800-767-
3524.
Bar Chart. The bar chart represents the 1998 and 1999 calendar year
performance of Class A Shares of the Fund (which is the share class with the
longest operating history). The bar chart does not reflect the maximum sales
charge imposed on Class A Shares. If these charges or fees had been included,
the returns would have been lower. Following the bar chart is the best and worst
calendar quarter performance for Class A Shares during these two calendar year
periods.
Total Return. The Average Annual Total Returns for Class A and B Shares of the
Fund are compared to an appropriate broad-based securities market index for the
periods shown. Unlike the performance information shown in the bar chart, the
Fund's 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 Fund's
performance. You cannot invest directly in an index.
Annual Total Returns (for calendar years ended December 31)--Class A Shares
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of Top 50 Europe as of the calendar
year-end for each of two years.
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 calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1999. The light gray shaded chart features two distinct
vertical bars, shaded in charcoal, and visually representing by height the total
return percentages for the calendar year stated directly at its base. The
calculated total return percentage for Class A Shares of the Fund for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1998 through 1999. The percentages noted are: 10.36% and 20.55%,
respectively.
Best quarter (4Q99) 22.91%
Worst quarter (3Q98) -20.60%
Average Annual Total Return*
(for the periods ended December 31, 1999)
1 Year Since Start
of
Performance**
Class A Shares 13.90% 9.75%
Class B Shares 14.55% 8.35%
MSCI Europe Index 15.89% 25.07%
* 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
Class B Shares: March 30, 1998
FEES AND EXPENSES
This table describes the fees and expenses of the Fund including those of the
corresponding Portfolio that you may pay if you buy and hold Class A Shares,
Class B Shares or Class C Shares of the Fund.
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Shareholder Fees:
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or
redemption proceeds, whichever is lower) 0.00%* 5.00%** 1.00%***
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) None None None
(as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets) (as a percentage of average net assets)
Management Fee 1.00% 1.00% 1.00%
Distribution and/or Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses 3.48% 3.39% 3.97%
Total Annual Fund Operating Expenses (before fee waivers and expense reimbursements) 4.73% 5.39% 5.97%
Total Reimbursements of Fund Expenses 3.13% 3.04% 3.62%
Total Net Annual Fund Operating Expenses (after fee waivers and expense
reimbursements)**** 1.60% 2.35% 2.35%
</TABLE>
* A maximum 1% contingent deferred sales charge may be imposed on
redemptions within one year of certain shares purchased without an
initial sales charge. See "Sales Charges."
** The contingent deferred sales charge declines from the maximum amount to
1% in the sixth year, and 0% thereafter.
*** 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.
**** The Manager has contractually agreed to waive its fees and reimburse
expenses of the Fund through December 31, 2000 to the extent necessary to
maintain the Fund's expense ratio at the level indicated as "Total Net
Annual Fund Operating Expenses (after reimbursements)."
Example:
This Example is intended to help you compare the cost of investing in the
Fund's Class A, B, and C Shares with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund's Class A, B, and C
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 Fund's Class A, B, and C Shares' operating
expenses remain the same during the period. Each of the examples assumes that
the fee waivers and expense reimbursements to the Fund's operating expenses are
in effect for only the first year of the 1, 3, 5 or 10-year periods. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10
years
<S> <C> <C> <C> <C>
Class A $704 $1,631 $2,563 $4,914
Class B
Assuming redemption fee $738 $1,646 $2,636 $5,131
Assuming no redemption fee $238 $1,340 $2,434 $5,131
Class C
Assuming redemption fee $338 $1,452 $2,642 $5,519
Assuming no redemption fee $238 $1,452 $2,642 $5,519
</TABLE>
INVESTMENT STRATEGIES
A summary of the Fund's principal investment strategy has been provided
above.Below is additional information on the Fund's principal investment
strategies.
The Adviser monitors the companies it selects for the Fund 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 by the Fund are domiciled or have their primary stock
market listings.
The Adviser will consider the geographic market focus of the Fund in
considering companies proposed for investment.
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 tends to have a heavier weighting of its assets in German
issuers, although this can change.
The Fund may also select companies that have restructuring potential along
with strong value-oriented management strategies.
Hedging
The Fund uses hedging transactions to attempt to reduce specific risks. For
example, to protect the Fund against circumstances that would normally cause the
Fund's portfolio securities to decline in value, the Fund may buy or sell a
derivative contract that would normally increase in value under the same
circumstances. The Fund may also attempt to hedge by using forward contracts,
combinations of different derivatives contracts, or derivatives contracts and
securities. The Fund's ability to hedge may be limited by the costs of the
derivatives contracts. The Fund 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 Fund, (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 Fund.
Temporary Defensive Investments
The Fund may temporarily depart from its principal investment strategy by
investing its 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. The Fund 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
Fund to give up greater investment returns to maintain the safety of principal,
that is, the original amount invested by shareholders.
PORTFOLIO INVESTMENTS
The Fund invests principally in securities of companies that are listed on a
stock exchange or trade on a recognized, regulated market open to the public.
Following are descriptions of the different types of securities that may
comprise the principal securities of the Fund, as explained above and in the
Fund's investment strategy. For purposes of the Fund's investments, convertible
bonds and bonds with warrants are considered equity securities, not fixed income
securities. The Fund may invest in each type of security and its related
subtypes.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it 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 Fund 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.
Foreign Securities
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. 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 Fund may
enter into spot currency trades. In a spot trade, the Fund agrees to exchange
one currency for another at the current exchange rate. The Fund 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 Fund's exposure to currency risks.
Derivative Contracts
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.
INVESTMENT RISKS
Following are descriptions of the different types of risks that an investment
in the Fund may entail, as previously summarized under "Risk Profile."
Stock Market Risks
The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
Sector Risks
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
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 Fund 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 Fund's performance. Infrequent trading of
securities may also lead to an increase in their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
Currency Risks
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.
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.
Risks of Investing in Specific Countries and Regions
The Fund invests a significant portion of its assets in specific regions or
countries, and therefore is 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,
the Fund has invested a substantial portion of its assets in Germany.
Risks of Foreign Investing
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.
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 Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
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.
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
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.
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.
Derivative Contracts
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 Fund to the effect of
leverage, and thereby increase the Fund's exposure to the market and loss that
it otherwise would have had if it had not entered into these transactions.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares is
based on the Fund's net asset value per share. When you buy Class A Shares, the
price you pay may be increased by a sales charge. When you redeem any class of
shares, the amount you receive may be reduced by a sales charge. Read the
section on sales charges for details on how and when these charges may or may
not be imposed.
The net asset value per share of the Fund is determined at 4:00 p.m. (Eastern
Time) on each day the New York Stock Exchange is open for business. Because the
Fund owns foreign securities that trade in foreign markets on days the Exchange
is closed, the value of a Fund's assets may change on days you cannot purchase,
redeem or exchange shares. On the day before certain holidays are observed, the
primary trading markets for the Fund may close early, and the Fund also may
close early. You may call the Fund at 1-800-767-3524 for additional information
about whether the Fund will close early before a particular holiday. The Net
Asset Value is calculated by subtracting the liabilities attributable to a class
from its proportionate share of the Fund's assets and dividing the result by the
outstanding shares of the class. Because the different classes have different
distribution or service fees, their net asset values may differ.
The value of shares of the Fund is generally determined based upon the market
value of the portfolio securities held by the underlying Portfolios. When price
quotes for a particular security are not readily available, investments are
priced at their "fair value" using procedures approved by the Fund's Board of
Directors.
You may buy or redeem shares on any day the New York Stock Exchange is open
for business (a "Business Day"). If your order is entered before the net asset
value per share is determined for that day, the price you pay or receive will be
based on that day's net asset value per share. If your order is entered after
the net asset value per share is determined for that day, or after the Fund has
closed early before a holiday, the price you pay or receive will be based on the
next Business Day's net asset value per share.
The following sections (as well as the Investors' Guide on How to Buy, Redeem,
and Exchange Shares) describe how to buy and redeem shares.
HOW TO BUY SHARES
You may buy any class of the Fund's shares through your securities dealer or
through any financial institution that is authorized to act as a shareholder
servicing agent. Contact them for details on how to enter and pay for your
order. You may also buy shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form includes
instructions and is available with this Prospectus.
You may invest in Class A Shares unless you are a defined contribution plan
with assets of $75 million or more.
Your purchase order may not be accepted if the sale of Fund shares has been
suspended or if it is determined that your purchase would be detrimental to the
interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments must
be at least $100. The following are exceptions to these minimums:
. If you are investing in an IRA account, your initial investment may be as
low as $1,000.
. If you are a shareholder of any other Flag Investors fund, your initial
investment in this Fund may be as low as $500.
. If you are a participant in the Fund's Automatic Investing Plan, your
initial investment may be as low as $250. Your subsequent investments may be
as low as $100 if you participate in the monthly program or $250 if you
participate in the quarterly program. Refer to the section on the Fund's
Automatic Investing Plan for details.
. There is no minimum investment requirement for qualified retirement plans
such as 401 (k), pension or profit sharing plans.
Investing Regularly
You may make regular investments in the Fund through any of the following
methods. If you wish to enroll in any of these programs or if you need any
additional information, complete the appropriate section of the Application Form
or contact your securities dealer, your servicing agent, or the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or quarterly
investment in any class of shares. The amount you decide upon will be withdrawn
from your checking account using a pre-authorized check. When the Transfer Agent
receives the money, it will be invested in the class of shares selected at that
day's offering price. Either you or the Fund may discontinue your participation
upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and capital
gains distributions will be reinvested in additional Fund shares at net asset
value. You may elect to receive your distributions in cash or to have your
distributions invested in shares of other Flag Investors funds. To make either
of these elections or to terminate automatic reinvestment, complete the
appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase either class of shares through
a Systematic Purchase Plan. Contact your securities dealer or servicing agent
for details.
HOW TO REDEEM SHARES
You may redeem any class of the Fund's shares through your securities dealer
or servicing agent. Contact them for details on how to enter your order and for
information as to how you will be paid. If you have an account with the Fund
that is in your name, you may also redeem shares by contacting the Transfer
Agent by mail or (if you are redeeming less than $50,000) by telephone. The
Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may require
the following documents before they redeem your shares:
. A letter of instructions specifying your account number and the number of
shares or dollar amount you wish to redeem. All owners of the shares must
sign the letter exactly as their names appear on the account.
. If you are redeeming more than $50,000, you need a guarantee of your
signature. You can obtain one from most banks or securities dealers.
. The Fund does not issue share certificates. 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.
. Any additional documents that may be required if your account is in the name
of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on shares you redeem will be paid on the next dividend
payable date. If you have redeemed all of your shares by that time, the dividend
will be paid to you by check whether or not that is the payment option you have
selected.
If you redeem sufficient shares to reduce your investment to $500 or less, the
Fund has the power to redeem the remaining shares after giving you 60 days'
notice. The Fund reserves the right to redeem shares in kind under certain
circumstances.
If you own Fund shares having a value of at least $10,000, you may arrange to
have some of your shares redeemed monthly or quarterly under the Fund's
Systematic Withdrawal Plan. Each redemption under this plan involves all the tax
and sales charge implications normally associated with Fund redemptions. Contact
your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
TELEPHONE TRANSACTIONS
If your shares are in an account with the Transfer Agent, you may redeem them
in any amount up to $50,000 or exchange them for shares in another Flag
Investors fund by calling the Transfer Agent on any Business Day between the
hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are automatically entitled
to telephone transaction privileges but you may specifically request that no
telephone redemptions or exchanges be accepted for your account. You may make
this election when you complete the Application Form or at any time thereafter
by completing and returning documentation supplied by the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that telephoned instructions are genuine. These procedures include requiring you
to provide certain personal identification information when you open your
account and before you effect each telephone transaction. You may be required to
provide additional telecopied instructions. If these procedures are employed,
neither the Fund nor the Transfer Agent will bear any liability for following
telephone instructions that it reasonably believes to be genuine. Your telephone
transaction request will be recorded.
During periods of extreme economic or market changes, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by mail.
If you hold shares in certificate form, you may not exchange or redeem them by
telephone.
SALES CHARGES
Purchase Price
The price you pay to buy shares will be the Fund's offering price, which is
calculated by adding any applicable sales charges to the net asset value per
share of the class you are buying. The amount of any sales charge included in
your purchase price will be according to the following schedule:
<TABLE>
<CAPTION>
Class A Sales Charge as % of
Class B Class C
Offering Net Amount Sales Sales
Amount of Purchase Price Invested Charge Charge
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 5.50% 5.82% None None
$50,000 - $99,999 4.50% 4.71% None None
$100,000 - $249,999 3.50% 3.63% None None
$250,000 - $499,999 2.50% 2.56% None None
$500,000 - $999,999 2.00% 2.04% None None
$1,000,000 and over None None None None
- -------------------------------------------------------------------------------------
</TABLE>
Although you do not pay an initial sales charge when you invest $1,000,000 or
more in Class A Shares or when you buy any amount of Class B or C Shares, you
may pay a sales charge when you redeem your shares. Refer to the section on
redemption price for details. Your securities dealer may be paid a commission at
the time of your purchase.
The sales charge you pay on your current purchase of Class A Shares may be
reduced under the circumstances listed below.
Rights of Accumulation. If you are purchasing additional Class A Shares of
this Fund or Class A shares of any other Flag Investors fund or if you already
have investments in Class A shares, you may combine the value of your purchases
with the value of your existing investments to determine whether you qualify for
a reduced sales charge. (For this purpose your existing investments will be
valued at the higher of cost or current value.) You may also combine your
purchases and investments with those of your spouse and your children under the
age of 21 for this purpose. You must be able to provide sufficient information
to verify that you qualify for this right of accumulation.
Letter of Intent. If you anticipate making additional purchases of Class A
Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to initially
purchase at least 5% of the total. When you make each purchase during the
period, you will pay the sales charge applicable to their combined value. If, at
the end of the 13-month period, the total value of your purchases is less than
the amount you indicated, you will be required to pay the difference between the
sales charges you paid and the sales charges applicable to the amount you
actually did purchase. Some of the shares you own will be redeemed to pay this
difference.
Purchases at Net Asset Value. You may buy Class A Shares without paying a
sales charge under the following circumstances:
. If you are reinvesting some or all of the proceeds of a redemption of Class
A Shares made within the last 90 days.
. If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a description of
the conditions).
. If you are a current or retired Fund Director, a director, an employee or a
member of the immediate family of an employee of any of the following (or
their respective affiliates): the Fund's distributor, the Investment
Manager or a brokerdealer authorized to sell shares of the Fund.
. If you are buying shares in any of the following types of accounts:
- A qualified retirement plan;
- A Flag Investors fund payroll savings plan program;
- A fiduciary or advisory account with a bank, bank trust department,
registered investment advisory company, financial planner or securities
dealer purchasing shares on your behalf. To qualify for this provision
you must be paying an account management fee for the fiduciary or
advisory services. Your securities dealer or servicing agent may charge
you an additional fee if you buy shares in this manner.
Purchases by Exchange
You may exchange Class A, B or C shares of any other Flag Investors fund for an
equal dollar amount of Class A, B or C Shares, respectively, without payment of
the sales charges described above or any other charge. You may not exchange
Class A shares of a Flag Investors money market fund into the Fund without
payment of the sales charge unless you acquired those shares through a prior
exchange subject to a sales charge. You may enter both your redemption and
purchase orders on the same Business Day or, if you have already redeemed the
shares of the other fund, you may enter your purchase order within 90 days of
the redemption. The Fund may modify or terminate these offers of exchange upon
60 days' notice.
You may request an exchange through your securities dealer or servicing agent.
Contact them for details on how to enter your order. If your shares are in an
account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
The amount of any sales charge deducted from your redemption price will be
determined according to the following schedule.
<TABLE>
<CAPTION>
Sales Charge as a Percentage
of the Dollar Amount Subject to Charge
Class A Sales Class B Sales Class B Sales
Charge Charge Charge
(as % of (as % of (as % of
Cost or Cost or Cost or
Years Since Purchase Value) Value) Value)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
First 1.00%* 5.00% 1.00%
Second 0.50%* 4.00% None
Third None 3.00% None
Fourth None 3.00% None
Fifth None 2.00% None
Sixth None 1.00% None
Seventh and Thereafter None None None
- ------------------------------------------------------------------------------
</TABLE>
* You will pay a sales charge when you redeem Class A Shares only if your shares
were purchased at net asset value because they were part of an investment of
$1 million or more. The 0.50% charge only applies to Class A Shares purchased
on or after January 18, 2000.
Determination of Sales Charge. The sales charge applicable to your redemption
is calculated in a manner that results in the lowest possible rate:
. No sales charge will be applied to shares you own as a result of reinvesting
dividends or distributions.
. If you have purchased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
. If you acquired your shares through an exchange of shares of another Flag
Investors fund, the period of time you held the original shares will be
combined with the period of time you held the shares being redeemed to
determine the years since purchase. If you bought your shares prior to
January 18, 2000, you will pay the sales charge in effect at the time of
your original purchase.
. The sales charge is applied to the lesser of the cost of the shares or their
value at the time of your redemption.
Waiver of Sales Charge. You may redeem shares without paying a sales charge
under any of the following circumstances:
. If you are exchanging your shares for shares of another Flag Investors fund
of the same class.
. If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
. If your redemption represents a distribution from a Systematic Withdrawal
Plan. This waiver applies only if the annual withdrawals under your Plan are
12% or less of your share balance.
. If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
- The account is registered in your name either individually, as a joint
tenant with rights of survivorship, as a participant in community property
or as a minor child under the Uniform Gifts or Uniform Transfers to Minors
Acts.
- Either you or your representative notifies your securities dealer,
servicing agent or the Transfer Agent that such circumstances exist.
. If you are redeeming Class A Shares, your original investment was at least
$3,000,000 and your securities dealer has agreed to return to the Fund's
distributor any payments received when you bought your shares.
Automatic Conversion of Class B Shares. Your Class B Shares, along with any
reinvested dividends or distributions associated with those shares, will be
automatically converted to Class A Shares seven years after your purchase. If
you purchased your shares prior to January 18, 2000, your shares will be
converted to Class A Shares eight years after your purchase. This conversion
will be made on the basis of the relative net asset values of the classes and
will not be a taxable event to you.
HOW TO CHOOSE THE CLASS THAT IS RIGHT FOR YOU
Your decision as to which class of the Fund's shares is best for you should be
based upon a number of factors including the amount of money you intend to
invest and the length of time you intend to hold your shares.
If you choose Class A Shares, you will pay a sales charge when you buy your
shares, but the amount of the charge declines as the amount of your investment
increases. You will pay lower expenses while you hold the shares and, except in
the case of investments of $1,000,000 or more, no sales charge if you redeem
them.
If you choose Class B Shares, you will pay no sales charge when you buy your
shares, but your annual expenses will be higher than Class A Shares. You will
pay a sales charge if you redeem your shares within six years of purchase, but
the amount of the charge declines the longer you hold your shares and, at the
end of seven years, your shares convert to Class A Shares, thus eliminating the
higher expenses.
If you choose Class C Shares, you will pay no sales charge when you buy your
shares or if you redeem them after holding them for at least a year. On the
other hand, expenses on Class C Shares are the same as those on Class B Shares
and, since there is no conversion to Class A Shares at the end of seven years,
the higher expenses continue for as long as you own your shares.
In general, if you intend to invest more than $50,000 your combined sales
charges and expenses are lower with Class A Shares. If you intend to invest less
than $50,000 and expect to hold your shares for more than seven years, your
combined sales charges and expenses are lower with Class B Shares. If you intend
to invest less than $50,000 and expect to hold your shares for less than seven
years, your combined sales charges and expenses are lower with Class C Shares.
Your securities dealer is paid a fee when you buy shares. In addition, your
securities dealer is paid an annual fee as long as you hold your shares. For
Class A and B Shares, this fee begins when you purchase your shares. For Class C
Shares, this fee begins one year after you purchase your shares. Your securities
dealer or servicing agent may receive different levels of compensation depending
upon which class of shares you buy.
Distribution Plans
The Fund has adopted plans under Rule 12b-1 that allow the Fund to pay your
securities dealer or shareholder servicing agent distribution and other fees for
the sale of its shares and for shareholder service. Class A Shares pay an annual
shareholder servicing fee equal to 0.25% of average daily net assets. Class B
and C Shares pay an annual distribution fee equal to 0.75% of average daily net
assets of the respective class and an annual shareholder servicing fee equal to
0.25% of average daily net assets of the respective class. Because these fees
are paid out of net assets on an on-going basis, they will, over time, increase
the cost of your investment and may cost you more than paying other types of
sales charges.
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of its
taxable net investment income in the form of annual dividends and to distribute
taxable net capital gains on an annual basis.
Taxes
The following summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its income and capital gains.
The dividends and distributions you receive are subject to federal, state and
local taxation, depending on your tax situation. Distributions you receive from
the Fund may be taxable whether or not you reinvest them. Each sale or exchange
of the Fund's shares is a taxable event.
More information about taxes is in the Statement of Additional Information.
Please contact your tax advisor regarding your specific questions about federal,
state and local income taxes.
FUND MANAGEMENT
A Board of Directors governs the Fund, and a Board of Trustees governs the
Portfolio. The Board of Trustees selects the Manager, Deutsche Fund Management,
Inc. (DFM). The Manager is responsible for managing the Portfolio's assets,
including buying and selling portfolio securities. However, the Manager has
delegated daily management of the Portfolio's assets to the Advisers, who is
paid by the Manager and not by the Portfolio. The Manager and Adviser are
registered investment advisers. The Adviser of the Portfolio is DWS
International Portfolio Management GmbH (DWS). The address for the Manager is
280 Park Avenue, New York, NY 10017. The address for DWS is Grueneburgweg 113-
115, 60323 Frankfurt am Main, Germany.
The Fund may withdraw its investment from the Portfolio at any time if the
Fund's 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 and the Adviser are subsidiaries of Deutsche Bank AG, a major
global banking institution. With total assets the equivalent of US$874.8billion
and 90,850 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 the Portfolio.
Other subsidiaries of Deutsche Bank AG include Deutsche Fonds Holding GmbH
(DFH), a company with limited liability organized under the laws of Germany. 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 200 mutual funds, having aggregate assets under
management of more than the equivalent of US$83.7billion as of June 30, 1999.
DFH, along with its subsidiaries, employs approximately 698 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 23.9% 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: best fund manager for 1-, 3- and 5-year periods. These awards were given
to fund managers having 10 or more funds registered for sale in Germany, based
on the manager with the highest number of funds ranked first within various
categories of investment 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 these events took
place. As a result of the plea, however, absent an order from the SEC, DFM and
DWS 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 Portfolio that is the underlying investments of the
Fund. Each portfolio manager has served as such since the inception of the
Portfolio in October 1997.
Mr. Klaus Martini joined the DWS Group in 1984, where he hasbeen a Portfolio
Manager for European stock funds since 1988. Mr. Martini also 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 6.4
billion ($6.6 billion) as of June 30, 1999.
Ms. Elisabeth Weisenhorn has 13 years of experience as an investment
manager.She joined the DWS Group in 1985as Senior Investment Officer, Head of
the European Equity Team. Ms. Weisenhorn supervises funds holding assets under
management of EUR 13.9 billion ($14.2 billion) as of June 30, 1999. Ms.
Weisenhorn is based at DWS Group's office in Frankfurt, Germany.
Management and Advisory Fees
The Manager receives an annual fee of 1.00% based on the average daily net
assets of the underlying Portfolio in which the Fund invests. The Manager pays
the Adviser a portion of this fee. The Manager has agreed to waive its fee and
reimburse expenses of the Fund and Portfolio in order to maintain the Fund's
total operating expenses (other than extraordinary expenses) at not more than
the following percentages of average annual net assets of the Share classes
through December 31, 2000: 1.60% for Class A Shares; 2.35% for Class B Shares;
and 2.35% for Class C Shares.
FINANCIAL INFORMATION
The Financial Highlights will help you understand the Fund's financial
performance since its 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 Fund, assuming reinvestment
of any dividends and capital gains.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's audited financial statements, is included in the Annual
Report for the fiscal year ended August 31, 1999. The Annual Report accompanies
the Fund's Statement of Additional Information.
The financial information is presented for the fiscal year ended August 31,
1999 under the name of the Fund in effect at that time (Deutsche Funds, Inc.).
FINANCIAL HIGHLIGHTS
Selected data for a Class A share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
For the Year For the Period
Ended/1/ Ended/1/
August 31, Auggust 31,
1999 1999
------------ --------------
<S> <C> <C>
Net asset value at beginning of period $ 13.03 $ 12.50
------- -------
Investment Operations:
Net investment income 0.04 0.02
Net realized and unrealized gain on investments, futures
contracts and foreign currency allocated from corresponding
Deutsche Portfolio 0.33 0.51
------- -------
Increase from investment operations 0.37 0.53
------- -------
Distributions to Shareholders:
Dividends from net investment income - -
Distributions from net realized gains - -
------- -------
Total distributions - -
------- -------
Net asset value at end ofperiod $ 13.40 $ 13.03
======= =======
Total Return (based on net asset value)/2/ 2.84% 4.24%*
Ratios and Supplemental Data:
Net assets, end of period (000's) $ 3,796 $ 1,208
Ratios to Average Net Assets:
Expenses3 1.60% 1.60%**
Net investment income/3/ 0.44% 0.50%**
Portfolio turnover of corresponding Deutsche Portfolio 61% 27%*
- ------------------------
1 Commencement of operations 10/2/97 2 Total Return based on net asset value,
excluding transaction charges, assumes a purchase of common stock at net asset
value at the
beginning of each period, reinvestment of distributions at net asset value and a redemption on the last day of
the period, also at
net asset value. During the period, total return would have been lower had certain expenses not been reimbursed
by the Manager.
3 Includes the Fund's allocated portion of the corresponding Deutsche Portfolio's expenses net of expense
reimbursements. Had the
Man ager not undertaken to reimburse such expenses, the ratios of expenses and
net investment income (loss) to average net assets
would have been as follows:
Expenses to average net assets 4.73 % 16.53 %**
Net investment loss to average net assets (2.69)% (14.43)%**
* Not annualized
**Annualized
</TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a Class B share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
For the Year For the Period
Ended Ended/1/
August 31, August 31,
1998 1998
------------ ---------------
<S> <C> <C>
Net asset value at beginning of period $ 11.65 $ 12.50
--------- -------
Investment Operations:
Net investment loss (0.04) (0.01)
Net realized and unrealized gain (loss) on investments,
futures contracts and foreign currency allocated from
corresponding Deutsche Portfolio 0.28 (0.84)
--------- -------
Increase (decrease) from investment operations 0.24 (0.85)
--------- -------
Distributions to Shareholders:
Dividends from net investment income - -
Distributions from net realized gains - -
--------- -------
Total distributions - -
--------- -------
Net asset value at end ofperiod $ 11.89 $ 11.65
========= =======
Total Return (based on net asset value)/2/ 2.06% (6.80)%*
Ratios and Supplemental Data:
Net assets, end of period (000's) $ 6,395 $ 3,120
Ratios to Average Net Assets:
Expenses3 2.35% 2.35%**
Net investment loss/3/ (0.46)% (0.46)%**
Portfolio turnover of corresponding Deutsche Portfolio 61% 27%*
/1/ Commencement of operations 3/30/98 /2/ Total Return based on net asset
value, excluding transaction charges, assumes a purchase of common stock at net
asset value at
the begin ning of each period, reinvestment of distributions at net asset value and a redemption on the last
day of the period,
also at net asset value. During the period, total return would have been lower had certain expenses not been
reimbursed by the
Manager.
/3/ Includes the Fund's allocated portion of the corresponding Deutsche Portfolio's expenses net of expense
reimbursements. Had the
Man ager not undertaken to reimburse such expenses, the ratios of expenses
and net investment income (loss) to average net
assets would have been as follows:
Expenses to average net assets 5.39% 17.28%**
Net investment loss to average net assets (3.50)% (15.39)%**
*Not annualized
**Annualized
</TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a Class C share of common stock outstanding for the period
September 2, 1998/1/ through August 31, 1999.
Net asset value at beginning of period $ 12.50
--------
Investment Operations:
Net investment loss (0.03)
Net realized and unrealized gain on investments,
futures contracts and foreign currency allocated
from corresponding Deutsche Portfolio 0.48
--------
Increase from investment operations 0.45
--------
Distributions to Shareholders:
Dividends from net investment income -
Distributions from net realized gains -
--------
Total distributions -
--------
Net asset value at end ofperiod $ 12.95
========
Total Return (based on net asset value)/2/* 3.60% Ratios and Supplemental Data:
Net assets, end of period (000's) $ 967
Ratios to Average Net Assets:
Expenses/3/** 2.35%
Net investment loss3** (0.31)%
Portfolio turnover of corresponding Deutsche Portfolio* 61%
- ----------------
1 Commencement of operations
2 Total Return based on net asset value, excluding transaction charges, assumes
a purchase of common stock at net asset value at the begin ning of each
period, reinvestment of distributions at net asset value and a redemption on
the last day of the period, also at net asset value. During the period, total
return would have been lower had certain expenses not been reimbursed by the
Manager.
3 Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Man ager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
Expenses to average net assets** 5.97% Net investment loss to average net
assets** (3.93)%
* Not annualized
**Annualized
[LOGO OF FLAG INVESTORS]
Flag Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7010
(800) 767-3524
A Statement of Additional Information (SAI) dated December 31, 1999, as revised
on January 18, 2000, is incorporated by reference into this prospectus, as is an
Investors' Guide on How to Buy, Redeem, and Exchange Shares containing
additional information on how to buy and redeem shares. Additional information
about the Fund's investments is contained in the Fund's SAI and Annual and
SemiAnnual Reports to shareholders as they become available. The Annual Report's
Investment Review discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, the Annual Report, Semi-Annual Report and other information
without charge, and make inquiries, call your investment professional or the
Fund at 1-800-767-3524.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
Investment Company Act File No. 811-8227
Cusip 33832F887
Cusip 33832F879
Cusip 33832F861
G02179-14
TOP50EPRO
(01/2000)
[Logo of Flag Investors]
Top 50 Asia
(formerly Deutsche Top 50 Asia)
Class A Shares and Class B Shares
Prospectus -- December 31, 1999, as revised January 18, 2000
This mutual fund (the "Fund") seeks high capital appreciation, and as a
secondary objective, reasonable dividend income.
The Fund offers shares through securities dealers and through financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. This Prospectus describes Flag Investors
Class A Shares ("Class A Shares") and Flag Investors Class B Shares ("Class B
Shares") of the Fund. These separate classes give you a choice as to sales
charges and Fund expenses. (Refer to the section on sales charges and to the
Application. Also refer to the Investors' Guide on How to Buy, Redeem, and
Exchange Shares, which is incorporated by reference and contains additional
information on how to buy and redeem shares.)
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Investment Objective, Strategies,
Performance and Risk................. 1
Fees and Expenses...................... 3
Investment Strategies.................. 4
Portfolio Investments.................. 5
Investment Risks....................... 6
The Fund's Net Asset Value............. 7
How to Buy Shares...................... 8
How to Redeem Shares................... 9
Telephone Transactions................. 9
Sales Charges.......................... 10
How to Choose the Class That is Right
for you.............................. 12
Dividends and Taxes.................... 12
Fund Management........................ 12
Financial Information.................. 14
</TABLE>
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.
INVESTMENT OBJECTIVE, STRATEGIES, PERFORMANCE AND RISK
- -------------------------------------------------------------------------------
Objectives and Strategies
The Fund is part of a series of Flag Investors Funds, Inc. The 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
Fund and its corresponding Portfolio. For a table of the Fund and its
corresponding Portfolio, see "Organization" in the Fund's Statement of
Additional Information. The Fund does not represent a complete investment
program, and may not be suitable for all investors.
Investment Objective: The investment objective of the Fund is high capital
appreciation, and as a secondary objective, reasonable dividend income.
The Fund generally owns equity securities of 50 companies. The portfolio
manager selects companies considered to be of outstanding quality in their
particular field based on some or all of the following attributes:
. strong market position within its market;
. profitability, predictability and duration of earnings growth, reflected in
sound balance sheet ratios and financial statements;
. high quality management with an orientation toward strong, long-term
earnings;
. long-range strategic plans in place;
. generally publicly-held with broad distribution of financial information
related to its operations.
Strategy: The Fund invests at least 65% of its total assets in equity
securities (primarily common and preferred stocks) 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:
. strong prospects for medium-term growth;
. solid market position, with favorable financial performance and indicators;
and
. high quality management whose aim is toward longer-term earnings, with a
strategic view of their companies and markets.
Risk Profile
All mutual funds take investment risks. Therefore, it is possible to lose
money by investing in the Fund. The primary factors that may reduce the Fund's
returns are listed below.
. Stock market risks -- the value of securities rise and fall;
. Sector risks -- the possibility that certain sectors may underperform other
sectors or the market as a whole;
. Liquidity risks -- the foreign securities in which the Fund invests may
trade infrequently and may be subject to greater fluctuation in price than
other securities;
. Currency risks -- fluctuations in the exchange rate between the U.S. dollar
and foreign currencies;
. Risks of investing in specific regions -- the Fund may invest a significant
portion of its assets in a particular foreign country or geographic region,
which makes the Fund subject to greater currency risk and more susceptible
to adverse impact from actions of foreign governments;
. Risks of foreign investing -- the foreign markets in which the Fund invests
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;
. Risks of investing in emerging market countries -- prices of emerging
market securities in which the Fund invests can be significantly more
volatile than prices of securities in developed countries; and
. Risks of non-diversification -- as a non-diversified Fund, the Fund is
allowed to invest a higher percentage of its assets among fewer issuers of
portfolio securities than diversified Funds. This increases the Fund's
risks by magnifying the impact (positively or negatively) that any one
issuer has on the Fund's share price and performance. Despite this ability
to invest in fewer issuers, the Fund generally attempts to maintain
exposure to a broad number of issuers.
The Fund cannot guarantee that it will achieve its investment objective.
The shares of the Fund 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.
Fund Performance
The following unaudited performance information gives you an indication of the
risks of investing in the Fund by comparing its performance with a broad measure
of market performance. Past performance of the Fund does not necessarily predict
future performance. For more current performance information, call
1-800-767-3524.
Bar Chart. The bar chart represents the 1998 and 1999 calendar year
performance of Class A Shares of the Fund (which is the share class with the
longest operating history). The bar chart does not reflect the maximum sales
charge imposed on Class A Shares. If these charges or fees had been included,
the returns would have been lower. Following the bar chart is the best and worst
calendar quarter performance for Class A Shares during these two calendar year
periods.
Total Return. The Average Annual Total Returns for Class A and B Shares of the
Fund are compared to an appropriate broad-based securities market index for the
periods shown. Unlike the performance information shown in the bar chart, the
Fund's 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 Fund's
performance. You cannot invest directly in an index.
Annual Total Returns (for calendar years ended December 31)--Class A Shares
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of Top 50 Asia as of the calendar
year-end for each of two years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 25.00% up to 125.00%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1999. The light gray shaded chart features two distinct
vertical bars, shaded in charcoal, and visually representing by height the total
return percentages for the calendar year stated directly at its base. The
calculated total return percentage for Class A Shares of the Fund for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1998 through 1999. The percentages noted are: 9.12% and 122.13%,
respectively.
<TABLE>
<S> <C> <C>
Best quarter (4Q99) 38.92%
Worst quarter (2Q98) -19.84%
</TABLE>
Average Annual Total Return*
(for the periods ended December 31, 1999)
<TABLE>
<CAPTION>
Since Start of
1 Year Performance**
<S> <C> <C>
Class A Shares 109.92% 34.74%
Class B Shares 115.58% 63.65%
MSCI Pacific ex-Japan Index 42.58% 12.27%
</TABLE>
* 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
Class B Shares: May 5, 1998
FEES AND EXPENSES
- -------------------------------------------------------------------------------
This table describes the fees and expenses of the Fund including those of the
corresponding Portfolio that you may pay if you buy and hold Class A Shares or
Class B Shares of the Fund.
<TABLE>
<CAPTION>
Class A Class B
- ------- -------
<S>
<C> <C>
Shareholder
Fees:
(fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)...........................
5.50% None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds,
whichever is lower)...........................................................................................
0.00%* 5.00%**
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of
offering price)...............................................................................................
None None
Redemption Fee (as a percentage of amount redeemed, if applicable).............................................
None None
Exchange Fee...................................................................................................
None None
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets) (as a percentage of average net assets)
Management Fee.................................................................................................
1.00% 1.00%
Distribution and/or Service (12b-1) Fees.......................................................................
0.25% 1.00%
Other Expenses.................................................................................................
2.25% 1.75%
- ----- -----
Total Annual Fund Operating Expenses (before fee waivers and expense reimbursements)...........................
3.50% 3.75%
Total Reimbursements of Fund Expenses..........................................................................
1.90% 1.40%
- ----- -----
Total Net Annual Fund Operating Expenses (after fee waivers and expense reimbursements)***.....................
1.60% 2.35%
</TABLE>
- --------------------
* A maximum 1% contingent deferred sales charge may be imposed on redemptions
within one year of certain shares purchased without an initial sales charge.
See "Sales Charges."
** The contingent deferred sales charge declines from the maximum amount to 1%
in the sixth year, and 0% thereafter.
*** The Manager has contractually agreed to waive its fees and reimburse
expenses of the Fund through December 31, 2000 to the extent necessary to
maintain the Fund's expense ratio at the level indicated as "Total Net
Annual Fund Operating Expenses (after reimbursements)."
Example:
This Example is intended to help you compare the cost of investing in the
Fund's Class A and B Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A and B 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 Fund's Class A and B Shares' operating expenses remain
the same during the period. Each of the examples assumes that the fee waivers
and expense reimbursements to the Fund's operating expenses are in effect for
only the first year of the 1, 3, 5 or 10-year periods. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $704 $1,398 $2,113 $3,998
Class B
Assuming redemption fee $738 $1,329 $2,030 $3,904
Assuming no redemption fee $238 $1,018 $1,817 $3,904
</TABLE>
INVESTMENT STRATEGIES
- -------------------------------------------------------------------------------
A summary of the Fund's principal investment strategy has been provided above.
Below is additional information on the Fund's principal investment strategies.
The Adviser monitors the companies it selects for the Fund 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 by the Fund are domiciled or have their primary stock
market listings.
The Adviser will consider the geographic market focus of the Fund in
considering companies proposed for investment.
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.
Consistent with the Fund's investment strategy, the Fund may invest in other
Asian companies. The Fund focuses on companies that meet one or more of the
following attributes:
. strong prospects for medium-term growth;
. solid market position, with favorable financial performance and indicators;
and
. high quality management whose aim is toward longer-term earnings, with a
strategic view of their companies and markets.
Hedging
The Fund uses hedging transactions to attempt to reduce specific risks. For
example, to protect the Fund against circumstances that would normally cause the
Fund's portfolio securities to decline in value, the Fund may buy or sell a
derivative contract that would normally increase in value under the same
circumstances. The Fund may also attempt to hedge by using forward contracts,
combinations of different derivatives contracts, or derivatives contracts and
securities. The Fund's ability to hedge may be limited by the costs of the
derivatives contracts. The Fund 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 Fund, (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 Fund.
Temporary Defensive Investments
The Fund may temporarily depart from its principal investment strategy by
investing its 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. The Fund 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
Fund to give up greater investment returns to maintain the safety of principal,
that is, the original amount invested by shareholders.
PORTFOLIO INVESTMENTS
- -------------------------------------------------------------------------------
The Fund invests principally in securities of companies that are listed on a
stock exchange or trade on a recognized, regulated market open to the public.
Following are descriptions of the different types of securities that may
comprise the principal securities of the Fund, as explained above and in the
Fund's investment strategy. For purposes of the Fund's investments, convertible
bonds and bonds with warrants are considered equity securities, not fixed income
securities. The Fund may invest in each type of security and its related
subtypes.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it 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 Fund 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.
Foreign Securities. 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. 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 Fund may
enter into spot currency trades. In a spot trade, the Fund agrees to exchange
one currency for another at the current exchange rate. The Fund 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 Fund's exposure to currency risks.
Derivative Contracts
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.
INVESTMENT RISKS
- -------------------------------------------------------------------------------
Following are descriptions of the different types of risks that an investment
in the Fund may entail, as previously summarized under "Risk Profile."
Stock Market Risks
The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
Sector Risks
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
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 Fund 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 Fund's performance. Infrequent trading of
securities may also lead to an increase in their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
Currency Risks
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.
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.
Historically, exchange rates have been more volatile in Asian countries.
Therefore, currency risks may be higher for the Fund.
Risks of Investing in Specific Countries
and Regions
The Fund invests a significant portion of its assets in specific regions or
countries, and therefore is 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,
the Fund invests in Asian countries, which have experienced sudden and
unexpected disruptions in their governments and economies with adverse
consequences for investors.
Risks of Foreign Investing
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.
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 Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
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.
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
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.
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.
Derivative Contracts
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 Fund 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.
THE FUND'S NET ASSET VALUE
- -------------------------------------------------------------------------------
The price you pay when you buy shares or receive when you redeem shares is
based on the Fund's net asset value per share. When you buy Class A Shares, the
price you pay may be increased by a sales charge. When you redeem any class of
shares, the amount you receive may be reduced by a sales charge. Read the
section on sales charges for details on how and when these charges may or may
not be imposed.
The net asset value per share of the Fund is determined at 4:00 p.m. (Eastern
Time) on each day the New York Stock Exchange is open for business. Because the
Fund owns foreign securities that trade in foreign markets on days the Exchange
is closed, the value of a Fund's assets may change on days you cannot purchase,
redeem or exchange shares. On the day before certain holidays are observed, the
primary trading markets for the Fund may close early, and the Fund also may
close early. You may call the Fund at 1-800-767-3524 for additional information
about whether the Fund will close early before a particular holiday. The Net
Asset Value is calculated by subtracting the liabilities attributable to a class
from its proportionate share of the Fund's assets and dividing the result by the
outstanding shares of the class. Because the different classes have different
distribution or service fees, their net asset values may differ.
The value of shares of the Fund is generally determined based upon the market
value of the portfolio securities held by the underlying Portfolios. When price
quotes for a particular security are not readily available, investments are
priced at their "fair value" using procedures approved by the Fund's Board of
Directors.
You may buy or redeem shares on any day the New York Stock Exchange is open
for business (a "Business Day"). If your order is entered before the net asset
value per share is determined for that day, the price you pay or receive will be
based on that day's net asset value per share. If your order is entered after
the net asset value per share is determined for that day, or after the Fund has
closed early before a holiday, the price you pay or receive will be based on the
next Business Day's net asset value per share.
The following sections (as well as the Investors' Guide on How to Buy, Redeem,
and Exchange Shares) describe how to buy and redeem shares.
HOW TO BUY SHARES
- -------------------------------------------------------------------------------
You may buy any class of the Fund's shares through your securities dealer or
through any financial institution that is authorized to act as a shareholder
servicing agent. Contact them for details on how to enter and pay for your
order. You may also buy shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form includes
instructions and is available with this Prospectus.
You may invest in Class A Shares unless you are a defined contribution plan
with assets of $75 million or more.
Your purchase order may not be accepted if the sale of Fund shares has been
suspended or if it is determined that your purchase would be detrimental to the
interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments must
be at least $100. The following are exceptions to these minimums:
If you are investing in an IRA account, your initial investment may be as low
as $1,000.
If you are a shareholder of any other Flag Investors fund, your initial
investment in this Fund may be as low as $500.
If you are a participant in the Fund's Automatic Investing Plan, your initial
investment may be as low as $250. Your subsequent investments may be as low as
$100 if you participate in the monthly program or $250 if you participate in the
quarterly program. Refer to the section on the Fund's Automatic Investing Plan
for details.
There is no minimum investment requirement for qualified retirement plans such
as 401 (k), pension or profit sharing plans.
Investing Regularly
You may make regular investments in the Fund through any of the following
methods. If you wish to enroll in any of these programs or if you need any
additional information, complete the appropriate section of the Application Form
or contact your securities dealer, your servicing agent, or the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or quarterly
investment in any class of shares. The amount you decide upon will be withdrawn
from your checking account using a pre-authorized check. When the Transfer Agent
receives the money, it will be invested in the class of shares selected at that
day's offering price. Either you or the Fund may discontinue your participation
upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and capital
gains distributions will be reinvested in additional Fund shares at net asset
value. You may elect to receive your distributions in cash or to have your
distributions invested in shares of other Flag Investors funds. To make either
of these elections or to terminate automatic reinvestment, complete the
appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase either class of shares through
a Systematic Purchase Plan. Contact your securities dealer or servicing agent
for details.
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------
You may redeem any class of the Fund's shares through your securities dealer
or servicing agent. Contact them for details on how to enter your order and for
information as to how you will be paid. If you have an account with the Fund
that is in your name, you may also redeem shares by contacting the Transfer
Agent by mail or (if you are redeeming less than $50,000) by telephone. The
Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may require
the following documents before they redeem your shares:
. A letter of instructions specifying your account number and the number of
shares or dollar amount you wish to redeem. All owners of the shares must
sign the letter exactly as their names appear on the account.
. If you are redeeming more than $50,000, you need a guarantee of your
signature. You can obtain one from most banks or securities dealers.
. The Fund does not issue share certificates. 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.
. Any additional documents that may be required if your account is in the
name of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on shares you redeem will be paid on the next dividend
payable date. If you have redeemed all of your shares by that time, the dividend
will be paid to you by check whether or not that is the payment option you have
selected.
If you redeem sufficient shares to reduce your investment to $500 or less, the
Fund has the power to redeem the remaining shares after giving you 60 days'
notice. The Fund reserves the right to redeem shares in kind under certain
circumstances.
If you own Fund shares having a value of at least $10,000, you may arrange to
have some of your shares redeemed monthly or quarterly under the Fund's
Systematic Withdrawal Plan. Each redemption under this plan involves all the tax
and sales charge implications normally associated with Fund redemptions. Contact
your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
TELEPHONE TRANSACTIONS
- -------------------------------------------------------------------------------
If your shares are in an account with the Transfer Agent, you may redeem them
in any amount up to $50,000 or exchange them for shares in another Flag
Investors fund by calling the Transfer Agent on any Business Day between the
hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are automatically entitled
to telephone transaction privileges but you may specifically request that no
telephone redemptions or exchanges be accepted for your account. You may make
this election when you complete the Application Form or at any time thereafter
by completing and returning documentation supplied by the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that telephoned instructions are genuine. These procedures include requiring you
to provide certain personal identification information when you open your
account and before you effect each telephone transaction. You may be required to
provide additional telecopied instructions. If these procedures are employed,
neither the Fund nor the Transfer Agent will bear any liability for following
telephone instructions that it reasonably believes to be genuine. Your telephone
transaction request will be recorded.
During periods of extreme economic or market changes, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by mail.
If you hold shares in certificate form, you may not exchange or redeem them by
telephone.
SALES CHARGES
- -------------------------------------------------------------------------------
Purchase Price
The price you pay to buy shares will be the Fund's offering price, which is
calculated by adding any applicable sales charges to the net asset value per
share of the class you are buying. The amount of any sales charge included in
your purchase price will be according to the following schedule:
<TABLE>
<CAPTION>
Class A Sales
Charge as % of
--------------------------- Class B
Offering Net Amount Sales
Amount of Purchase Price Invested Charge
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000................ 5.50% 5.82% None
$50,000 - $99,999................ 4.50% 4.71% None
$100,000 - $249,999.............. 3.50% 3.63% None
$250,000 - $499,999.............. 2.50% 2.56% None
$500,000 - $999,999.............. 2.00% 2.04% None
$1,000,000 and over.............. None None None
- ---------------------------------------------------------------------------
</TABLE>
Although you do not pay an initial sales charge when you invest $1,000,000 or
more in Class A Shares or when you buy any amount of Class B Shares, you may pay
a sales charge when you redeem your shares. Refer to the section on redemption
price for details. Your securities dealer may be paid a commission at the time
of your purchase.
The sales charge you pay on your current purchase of Class A Shares may be
reduced under the circumstances listed below.
Rights of Accumulation. If you are purchasing additional Class A Shares of
this Fund or Class A shares of any other Flag Investors fund or if you already
have investments in Class A shares, you may combine the value of your purchases
with the value of your existing investments to determine whether you qualify for
a reduced sales charge. (For this purpose your existing investments will be
valued at the higher of cost or current value.) You may also combine your
purchases and investments with those of your spouse and your children under the
age of 21 for this purpose. You must be able to provide sufficient information
to verify that you qualify for this right of accumulation.
Letter of Intent. If you anticipate making additional purchases of Class A
Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to initially
purchase at least 5% of the total. When you make each purchase during the
period, you will pay the sales charge applicable to their combined value. If, at
the end of the 13-month period, the total value of your purchases is less than
the amount you indicated, you will be required to pay the difference between the
sales charges you paid and the sales charges applicable to the amount you
actually did purchase. Some of the shares you own will be redeemed to pay this
difference.
Purchases at Net Asset Value. You may buy Class A Shares without paying a
sales charge under the following circumstances:
. If you are reinvesting some or all of the proceeds of a redemption of Class
A Shares made within the last 90 days.
. If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a description of
the conditions).
. If you are a current or retired Fund Director, a director, an employee or a
member of the immediate family of an employee of any of the following (or
their respective affiliates): the Fund's distributor, the Investment
Manager or a broker dealer authorized to sell shares of the Fund.
. If you are buying shares in any of the following types of accounts:
- A qualified retirement plan;
- A Flag Investors fund payroll savings plan program;
- A fiduciary or advisory account with a bank, bank trust department,
registered investment advisory company, financial planner or securities
dealer purchasing shares on your behalf. To qualify for this provision
you must be paying an account management fee for the fiduciary or
advisory services. Your securities dealer or servicing agent may charge
you an additional fee if you buy shares in this manner.
Purchases by Exchange
You may exchange Class A or B shares of any other Flag Investors fund for an
equal dollar amount of Class A or B Shares, respectively, without payment of the
sales charges described above or any other charge. You may not exchange Class A
shares of a Flag Investors money market fund into the Fund without payment of
the sales charge unless you acquired those shares through a prior exchange
subject to a sales charge. You may enter both your redemption and purchase
orders on the same Business Day or, if you have already redeemed the shares of
the other fund, you may enter your purchase order within 90 days of the
redemption. The Fund may modify or terminate these offers of exchange upon 60
days' notice.
You may request an exchange through your securities dealer or servicing agent.
Contact them for details on how to enter your order. If your shares are in an
account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
The amount of any sales charge deducted from your redemption price will be
determined according to the following schedule.
<TABLE>
<CAPTION>
Sales Charge as a
Percentage of the Dollar
Amount Subject to Charge
- -------------------------------------------------------------------------------
Class A Sales Class B Sales
Charge Charge
(as % of Cost or (as % of Cost or
Years Since Purchase Value) Value)
- -------------------------------------------------------------------------------
<S> <C> <C>
First............................. 1.00%* 5.00%
Second............................ 0.50%* 4.00%
Third............................. None 3.00%
Fourth............................ None 3.00%
Fifth............................. None 2.00%
Sixth............................. None 1.00%
Seventh and Thereafter............ None None
- -------------------------------------------------------------------------------
</TABLE>
* You will pay a sales charge when you redeem Class A Shares only if your shares
were purchased at net asset value because they were part of an investment of
$1 million or more. The 0.50% charge only applies to Class A Shares purchased
on or after January 18, 2000.
Determination of Sales Charge. The sales charge applicable to your redemption
is calculated in a manner that results in the lowest possible rate:
. No sales charge will be applied to shares you own as a result of
reinvesting dividends or distributions.
. If you have purchased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
. If you acquired your shares through an exchange of shares of another Flag
Investors fund, the period of time you held the original shares will be
combined with the period of time you held the shares being redeemed to
determine the years since purchase. If you bought your shares prior to
January 18, 2000, you will pay the sales charge in effect at the time of
your original purchase.
. The sales charge is applied to the lesser of the cost of the shares or
their value at the time of your redemption.
Waiver of Sales Charge. You may redeem shares without paying a sales charge
under any of the following circumstances:
. If you are exchanging your shares for shares of another Flag Investors fund
of the same class.
. If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
. If your redemption represents a distribution from a Systematic Withdrawal
Plan. This waiver applies only if the annual withdrawals under your Plan
are 12% or less of your share balance.
. If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
- The account is registered in your name either individually, as a joint
tenant with rights of survivorship, as a participant in community
property or as a minor child under the Uniform Gifts or Uniform
Transfers to Minors Acts.
- Either you or your representative notifies your securities dealer,
servicing agent or the Transfer Agent that such circumstances exist.
. If you are redeeming Class A Shares, your original investment was at least
$3,000,000 and your securities dealer has agreed to return to the Fund's
distributor any payments received when you bought your shares.
Automatic Conversion of Class B Shares. Your Class B Shares, along with any
reinvested dividends or distributions associated with those shares, will be
automatically converted to Class A Shares seven years after your purchase. If
you purchased your shares prior to January 18, 2000, your shares will be
converted to Class A Shares eight years after your purchase. This conversion
will be made on the basis of the relative net asset values of the classes and
will not be a taxable event to you.
HOW TO CHOOSE THE CLASS THAT IS RIGHT FOR YOU
- -------------------------------------------------------------------------------
Your decision as to which class of the Fund's shares is best for you should be
based upon a number of factors including the amount of money you intend to
invest and the length of time you intend to hold your shares.
If you choose Class A Shares, you will pay a sales charge when you buy your
shares, but the amount of the charge declines as the amount of your investment
increases. You will pay lower expenses while you hold the shares and, except in
the case of investments of $1,000,000 or more, no sales charge if you redeem
them.
If you choose Class B Shares, you will pay no sales charge when you buy your
shares, but your annual expenses will be higher than Class A Shares. You will
pay a sales charge if you redeem your shares within six years of purchase, but
the amount of the charge declines the longer you hold your shares and, at the
end of seven years, your shares convert to Class A Shares, thus eliminating the
higher expenses.
In general, if you intend to invest more than $50,000, your combined sales
charges and expenses are lower with Class A Shares. If you intend to invest less
than $50,000 and expect to hold your shares for more than seven years, your
combined sales charges and expenses are lower with Class B Shares.
Your securities dealer is paid a fee when you buy shares. In addition, your
securities dealer is paid an annual fee as long as you hold your shares. For
Class A and B Shares, this fee begins when you purchase your shares. Your
securities dealer or servicing agent may receive different levels of
compensation depending upon which class of shares you buy.
Distribution Plans
The Fund has adopted plans under Rule 12b-1 that allow the Fund to pay your
securities dealer or shareholder servicing agent distribution and other fees for
the sale of its shares and for shareholder service. Class A Shares pay an annual
shareholder servicing fee equal to 0.25% of average daily net assets. Class B
Shares pay an annual distribution fee equal to 0.75% of average daily net assets
of the respective class and an annual shareholder servicing fee equal to 0.25%
of average daily net assets of the respective class. Because these fees are paid
out of net assets on an on-going basis, they will, over time, increase the cost
of your investment and may cost you more than paying other types of sales
charges.
DIVIDENDS AND TAXES
- -------------------------------------------------------------------------------
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of its
taxable net investment income in the form of annual dividends and to distribute
taxable net capital gains on an annual basis.
Taxes
The following summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its income and capital gains.
The dividends and distributions you receive are subject to federal, state and
local taxation, depending on your tax situation. Distributions you receive from
the Fund may be taxable whether or not you reinvest them. Each sale or exchange
of the Fund's shares is a taxable event.
More information about taxes is in the Statement of Additional Information.
Please contact your tax advisor regarding your specific questions about federal,
state and local income taxes.
FUND MANAGEMENT
- -------------------------------------------------------------------------------
A Board of Directors governs the Fund, and a Board of Trustees governs the
Portfolio. The Board of Trustees selects the Manager, Deutsche Fund Management,
Inc. (DFM). The Manager is responsible for managing the Portfolio's assets,
including buying and selling portfolio securities. However, the Manager has
delegated daily management of the Portfolio's assets to the Adviser, who is paid
by the Manager and not by the Portfolio. The Manager and Adviser are registered
investment advisers. The Adviser of the Portfolio is DWS International Portfolio
Management GmbH (DWS). The address for the Manager is 280 Park Avenue, New York,
NY 10017. The address for DWS is Grueneburgweg 113-115, 60323 Frankfurt am Main,
Germany.
The Fund may withdraw its investment from the Portfolio at any time if the
Fund's 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 and the Adviser are subsidiaries of Deutsche Bank AG, a major
global banking institution. With total assets the equivalent of US $874.8
billion and 90,850 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 the Portfolio.
Other subsidiaries of Deutsche Bank AG include Deutsche Fonds Holding GmbH
(DFH), a company with limited liability organized under the laws of Germany. 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 200 mutual funds, having aggregate assets under
management of more than the equivalent of US $83.7 billion as of June 30, 1999.
DFH, along with its subsidiaries, employs approximately 698 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 23.9% 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: best fund manager for 1-, 3- and 5-year periods. These awards were given
to fund managers having 10 or more funds registered for sale in Germany, based
on the manager with the highest number of funds ranked first within various
categories of investment 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 these events took
place. As a result of the plea, however, absent an order from the SEC, DFM and
DWS 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 Manager
Following is the portfolio manager who is primarily responsible for the
day-to-day management of the Portfolio that is the underlying investments of the
Fund. The portfolio manager has served as such since the inception of the
Portfolio in October 1997.
Mr. Klaus Kaldemorgen has 16 years experience as an investment manager. He
joined the DWS Group in 1982 as Senior Investment Officer, Head of the Global
Equity Team, DWS Group, Investment Group of Deutsche Bank. Mr. Kaldemorgen
supervises funds holding assets under management of EUR 3.6 billion ($3.6
billion) as of June 30, 1999. Mr. Kaldemorgen also serves as Senior Portfolio
Manager for the Top 50 Welt and Top 50 Asian, 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.
Management and Advisory Fees
The Manager receives an annual fee of 1.00% based on the average daily net
assets of the underlying Portfolio in which the Fund invests. The Manager pays
the Adviser a portion of this fee. The Manager has agreed to waive its fee and
reimburse expenses of the Fund and Portfolio in order to maintain the Fund's
total operating expenses (other than extraordinary expenses) at not more than
the following percentages of average annual net assets of the Share classes
through December 31, 2000: 1.60% for Class A Shares; and 2.35% for Class B
Shares.
FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
The Financial Highlights will help you understand the Fund's financial
performance since its 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 Fund, assuming reinvestment
of any dividends and capital gains.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's audited financial statements, is included in the Annual
Report for the fiscal year ended August 31, 1999. The Annual Report accompanies
the Fund's Statement of Additional Information.
The financial information is presented for the fiscal year ended August 31,
1999 under the name of the Fund in effect at that time (Deutsche Funds, Inc.).
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Selected data for a Class A share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
For the
Year For the Period
Ended Ended/1/
August
31, August 31,
1999 1998
- ------------ --------------
<S>
<C> <C>
Net asset value at beginning of period................................................. $
8.18 $ 12.50
- ----------- -----------
Investment Operations:
Net investment income (loss)...........................................................
(0.10) 0.01
Net realized and unrealized gain (loss) on investments, futures contracts
and foreign currency allocated from corresponding Deutsche Portfolio..................
10.72 (4.33)
- ----------- -----------
Increase (decrease) from investment operations.........................................
10.62 (4.32)
- ----------- -----------
Distributions to
Shareholders:
Dividends from net investment income...................................................
(0.01) --
Distributions from net realized gains..................................................
- -- --
- ----------- -----------
Total distributions....................................................................
(0.01) --
- ----------- -----------
Net asset value at end of period....................................................... $
18.79 $ 8.18
=========== ===========
Total Return (based on net asset value)/2/..............................................
130.00% (34.56)%*
Ratios and Supplemental
Data:
Net assets, end of period (000's)...................................................... $
23,954 $ 41
Ratios to Average Net
Assets:
Expenses/3/............................................................................
1.60% 1.60%**
Net investment income (loss)/3/........................................................
(0.34)% 0.15%**
Portfolio turnover of corresponding Deutsche Portfolio.................................
51% 54%*
</TABLE>
- --------------------
<TABLE>
<S>
<C> <C>
/1/ Commencement of
operations......................................................... 10/14/97
</TABLE>
/2/ Total Return based on net asset value, excluding transaction charges,
assumes a purchase of common stock at net asset value at the beginning of
each period, reinvestment of distributions at net asset value and a
redemption on the last day of the period, also at net asset value. During
the period, total return would have been lower had certain expenses not
been reimbursed by the Manager.
/3/ Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
<TABLE>
<S>
<C> <C>
Expenses to average net assets.....................................................
3.50% 247.05%**
Net investment loss to average net assets..........................................
(2.24)% (245.30)%**
</TABLE>
* Not annualized
** Annualized
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Selected data for a Class B share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
For the
Year For the Period
Ended Ended/1/
August
31, August 31,
1999 1998
- ------------ --------------
<S>
<C> <C>
Net asset value at beginning of period................................................. $
9.28 $ 12.50
- ----------- -----------
Investment
Operations:
Net investment loss....................................................................
(0.12) (0.02)
Net realized and unrealized gain (loss) on investments, futures contracts
and foreign currency allocated from corresponding Deutsche Portfolio..................
12.06 (3.20)
- ----------- -----------
Increase (decrease) from investment operations.........................................
11.94 (3.22)
- ----------- -----------
Distributions to
Shareholders:
Dividends from net investment income...................................................
(0.01) --
Distributions from net realized gains..................................................
- -- --
- ----------- -----------
Total distributions....................................................................
(0.01) --
- ----------- -----------
Net asset value at end of period....................................................... $
21.21 $ 9.28
=========== ===========
Total Return (based on net asset value)/2/..............................................
128.65% (25.76)%*
Ratios and Supplemental
Data:
Net assets, end of period (000's)...................................................... $
3,667 $ 50
Ratios to Average Net
Assets:
Expenses/3/............................................................................
2.35% 2.35%**
Net investment loss/3/.................................................................
(1.32)% (0.51)%**
Portfolio turnover of corresponding Deutsche Portfolio.................................
51% 54%*
</TABLE>
- --------------------
<TABLE>
<S>
<C> <C>
/1/ Commencement of
operations......................................................... 5/5/98
</TABLE>
/2/ Total Return based on net asset value, excluding transaction charges,
assumes a purchase of common stock at net asset value at the beginning of
each period, reinvestment of distributions at net asset value and a
redemption on the last day of the period, also at net asset value. During
the period, total return would have been lower had certain expenses not
been reimbursed by the Manager.
/3/ Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
<TABLE>
<S>
<C> <C>
Expenses to average net assets.....................................................
3.75% 247.80%**
Net investment loss to average net assets..........................................
(2.72)% (245.96)%**
</TABLE>
* Not annualized
** Annualized
[Logo of Flag Investors]
Flag Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7010
(800) 767-3524
- -------------------------------------------------------------------------------
A Statement of Additional Information (SAI) dated December 31, 1999, as revised
on January 18, 2000, is incorporated by reference into this prospectus as is an
Investors' Guide on How to Buy, Redeem, and Exchange Shares containing
additional information on how to buy and redeem shares. Additional information
about the Fund's investments is contained in the Fund's SAI and Annual and
SemiAnnual Reports to shareholders as they become available. The Annual Report's
Investment Review discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, the Annual Report, Semi-Annual Report and other information
without charge, and make inquiries, call your investment professional or the
Fund at 1-800-767-3524.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
Investment Company Act File No. 811-8227
Cusip 33832F820
Cusip 33832F812
- -------------------------------------------------------------------------------
G02179-15
TOP50APRO
(01/2000)
[Flag Investors Logo]
Top 50 US
(formerly Deutsche Top 50 US)
Class A Shares, Class B Shares and Class C Shares
Prospectus -- December 31, 1999, as revised January 18, 2000
This mutual fund (the "Fund") seeks high capital appreciation, and as a
secondary objective, reasonable dividend income
The Fund offers shares through securities dealers and financial institutions
that act as shareholder servicing agents. You may also buy shares through the
Fund's Transfer Agent. This Prospectus describes Flag Investors Class A Shares
("Class A Shares"), Flag Investors Class B Shares ("Class B Shares") and Flag
Investors Class C Shares ("Class C Shares") of the Fund. These separate classes
give you a choice as to sales charges and Fund expenses. (Refer to the section
on sales charges and to the Application. Also refer to the Investors' Guide on
How to Buy, Redeem, and Exchange Shares, which is incorporated by reference and
contains additional information on how to buy and redeem Shares.)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Investment Objective, Strategies,
Performance and Risk.............................. 1
Fees and Expenses.................................
Investment Strategies............................
Portfolio Investments............................. 5
Investment Risks.................................. 5
The Fund's Net Asset Value........................ 6
How to Buy Shares................................. 6
How to Redeem Shares.............................. 7
Telephone Transactions............................ 7
Sales Charges..................................... 8
How to Choose the Class That is Right for You..... 10
Dividends and Taxes............................... 10
Fund Management................................... 11
Financial Information............................. 11
</TABLE>
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.
INVESTMENT OBJECTIVE, STRATEGIES, PERFORMANCE AND RISK
Objectives and Strategies
The Fund is part of a series of Flag Investors Funds, Inc. The 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
Fund and its corresponding Portfolio. For a table of the Fund and its
corresponding Portfolio, see "Organization" in the Fund's Statement of
Additional Information. The Fund does not represent a complete investment
program, and may not be suitable for all investors.
Investment Objective: The investment objective of the Fund is high capital
appreciation, and as a secondary objective, reasonable dividend income.
The Fund generally owns equity securities of 50 companies. The portfolio
manager selects companies considered to be of outstanding quality in their
particular field based on some or all of the following attributes:
. strong market position within its market;
. profitability, predictability and duration of earnings growth, reflected in
sound balance sheet ratios and financial statements;
. high quality management with an orientation toward strong, long-term
earnings;
. long-range strategic plans in place;
. generally publicly-held with broad distribution of financial information
related to its operations.
Strategy: The Fund invests at least 65% of its total assets in equity
securities (primarily common and preferred stock) 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:
. management talent;
. product or service differentiation;
. economies of scale; and
. 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.
Risk Profile
All mutual funds take investment risks. Therefore, it is possible to lose
money by investing in the Fund. The primary factors that may reduce the Fund's
returns are listed below.
. Stock market risks -- the value of securities rise and fall;
. Sector risks -- the possibility that certain sectors may underperform other
sectors or the market as a whole; and
. Risks of non-diversification -- as a non- diversified Fund, the Fund is
allowed to invest a higher percentage of its assets among fewer issuers of
portfolio securities than diversified Funds. This increases the Fund's risks
by magnifying the impact (positively or negatively) that any one issuer has
on the Fund's share price and performance. Despite this ability to invest in
fewer issuers, the Fund generally attempts to maintain exposure to a broad
number of issuers.
The Fund cannot guarantee that it will achieve its investment objective.
The shares of the Fund 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.
Fund Performance
The following unaudited performance information gives you an indication of the
risks of investing in the Fund by comparing its performance with a broad measure
of market performance. Past performance of the Fund does not necessarily predict
future performance.For more current performance information, call 1-800-767-
3524.
Bar Chart. The bar chart represents the 1998 and 1999 calendar year
performance of Class A Shares of the Fund (which is the share class with the
longest operating history). The bar chart does not reflect the maximum sales
charge imposed on Class A Shares. If these charges or fees had been included,
the returns would have been lower. Following the bar chart is the best and worst
calendar quarter performance for Class A Shares during these two calendar year
periods.
Total Return. The Average Annual Total Returns for Class A and B Shares of the
Fund are compared to an appropriate broad-based securities market index for the
periods shown. Unlike the performance information shown in the bar chart, the
Fund's 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 Fund's
performance. You cannot invest directly in an index.
Annual Total Returns (for calendar years
ended December 31)--Class A Shares
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of Top 50 US as of the calendar year-end
for each of two years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 10.00% up to 40.00%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1999. The light gray shaded chart features two distinct
vertical bars, shaded in charcoal, and visually representing by height the total
return percentages for the calendar year stated directly at its base. The
calculated total return percentage for Class A Shares of the Fund for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1998 through 1999. The percentages noted are: 33.88% and 28.01%,
respectively.
<TABLE>
<S> <C> <C>
Best quarter (4Q98) 27.37%
Worst quarter (3Q98) -11.04%
</TABLE>
Average Annual Total Return*
(for the periods ended December 31, 1999)
<TABLE>
<CAPTION>
Since Start of
1 Year Performance**
<S> <C> <C>
Class A Shares 20.98% 24.86%
Class B Shares 22.01% 23.55%
S&P 500 Index 21.04% 22.34%
</TABLE>
* 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
Class B Shares: March 18, 1998
FEES AND EXPENSES
This table describes the fees and expenses of the Fund including those of the
corresponding Portfolio that you may pay if you buy and hold Class A Shares,
Class B Shares or Class C Shares of the Fund.
<TABLE>
<CAPTION>
Class A
Class B Class C
Shareholder
Fees:
(fees paid directly from your
investment)
<S> <C>
<C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50%
None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or 0.00%*
5.00%** 1.00%***
redemption proceeds, whichever is
lower)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a None
None None
percentage of offering
price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
None None
Exchange Fee None
None None
Annual Fund Operating
Expenses:
(expenses that are deducted from Fund assets) (as a percentage of average net
assets)
Management Fee 0.85%
0.85% 0.85%
Distribution and/or Service (12b-1) Fees 0.25%
1.00% 1.00%
Other Expenses 4.61%
4.98% 5.30%
Total Annual Fund Operating Expenses (before fee waivers and expense reimbursements) 5.71%
6.83% 7.15%
Total Reimbursements of Fund Expenses 4.21%
4.58% 4.90%
Total Net Annual Fund Operating Expenses (after fee waivers and expense reimbursements)**** 1.50%
2.25% 2.25%
</TABLE>
* A maximum 1% contingent deferred sales charge may be imposed on
redemptions within one year of certain shares purchased without an initial
sales charge. See "Sales Charges."
** The contingent deferred sales charge declines from the maximum amount to
1% in the sixth year, and 0% thereafter.
*** 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.
**** The Manager has contractually agreed to waive its fees and reimburse
expenses of the Fund through December 31, 2000 to the extent necessary to
maintain the Fund's expense ratio at the level indicated as "Total Net
Annual Fund Operating Expenses (after reimbursements)."
Example:
This Example is intended to help you compare the cost of investing in the
Fund's Class A, B, and C Shares with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund's Class A, B, and C
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 Fund's Class A, B, and C Shares' operating
expenses remain the same during the period. Each of the examples assumes that
the fee waivers and expense reimbursements to the Fund's operating expenses are
in effect for only the first year of the 1, 3, 5 or 10- year periods. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years
10 years
<S> <C> <C> <C>
<C>
Class A $694 $1,803 $2,897
$5,563
Class
B
Assuming redemption fee $728 $1,903 $3,125
$6,047
Assuming no redemption fee $228 $1,606 $2,934
$6,047
Class
C
Assuming redemption fee $328 $1,666 $3,043
$6,234
Assuming no redemption fee $228 $1,666 $3,043
$6,234
</TABLE>
INVESTMENT STRATEGIES
A summary of the Fund's principal investment strategy has been provided above.
Below is additional information on the Fund's principal investment strategies.
The Adviser monitors the companies it selects for the Fund 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 by the Fund are domiciled or have their primary stock
market listings.
The Adviser will consider the geographic market focus of the Fund in
considering companies proposed for investment.
Although the Fund invests primarily in common and preferred 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.
Hedging
The Fund uses hedging transactions to attempt to reduce specific risks. For
example, to protect the Fund against circumstances that would normally cause the
Fund's portfolio securities to decline in value, the Fund may buy or sell a
derivative contract that would normally increase in value under the same
circumstances. The Fund may also attempt to hedge by using forward contracts,
combinations of different derivatives contracts, or derivatives contracts and
securities. The Fund's ability to hedge may be limited by the costs of the
derivatives contracts. The Fund 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 Fund, (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 Fund.
Temporary Defensive Investments
The Fund may temporarily depart from its principal investment strategy by
investing its 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. The Fund 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
Fund to give up greater investment returns to maintain the safety of principal,
that is, the original amount invested by shareholders.
PORTFOLIO INVESTMENTS
The Fund invests principally in securities of companies that are listed on a
stock exchange or trade on a recognized, regulated market open to the public.
Following are descriptions of the different types of securities that may
comprise the principal securities of the Fund, as explained above and in the
Fund's investment strategy. For purposes of the Fund's investments, convertible
bonds and bonds with warrants are considered equity securities, not fixed income
securities. The Fund may invest in each type of security and its related
subtypes.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it 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 Fund 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.
Derivative Contracts
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.
INVESTMENT RISKS
Following are descriptions of the different types of risks that an investment
in the Fund may entail, as previously summarized under "Risk Profile."
Stock Market Risks
The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
Sector Risks
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.
Derivative Contracts
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 Fund 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.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares is
based on the Fund's net asset value per share. When you buy Class A Shares, the
price you pay may be increased by a sales charge. When you redeem any class of
shares, the amount you receive may be reduced by a sales charge. Read the
section on sales charges for details on how and when these charges may or may
not be imposed.
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern
Time) on each day the Exchange is open for business. On the day before certain
holidays are observed, the primary trading markets for the Fund may close early,
and the Fund also may close early. You may call the Fund at 1-800-767-3524 for
additional information about whether the Fund will close early before a
particular holiday. The Net Asset Value is calculated by subtracting the
liabilities attributable to a class from its proportionate share of the Fund's
assets and dividing the result by the outstanding shares of the class.
Because the different classes have different distribution or service fees,
their net asset values may differ.
The value of shares of the Fund is generally determined based upon the market
value of the portfolio securities held by the underlying Portfolios. When price
quotes for a particular security are not readily available, investments are
priced at their "fair value" using procedures approved by the Fund's Board of
Directors.
You may buy or redeem shares on any day the New York Stock Exchange is open
for business (a "Business Day"). If your order is entered before the net asset
value per share is determined for that day, the price you pay or receive will be
based on that day's net asset value per share. If your order is entered after
the net asset value per share is determined for that day, or after the Fund has
closed early before a holiday, the price you pay or receive will be based on the
next Business Day's net asset value per share.
The following sections (as well as the Investors' Guide on How to Buy, Redeem,
and Exchange Shares) describe how to buy and redeem shares.
HOW TO BUY SHARES
You may buy any class of the Fund's shares through your securities dealer or
through any financial institution that is authorized to act as a shareholder
servicing agent. Contact them for details on how to enter and pay for your
order. You may also buy shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form includes
instructions and is available with this Prospectus.
You may invest in Class A Shares unless you are a defined contribution plan
with assets of $75 million or more.
Your purchase order may not be accepted if the sale of Fund shares has been
suspended or if it is determined that your purchase would be detrimental to the
interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments must
be at least $100. The following are exceptions to these minimums:
. If you are investing in an IRA account, your initial investment may be as
low as $1,000.
. If you are a shareholder of any other Flag Investors fund, your initial
investment in this Fund may be as low as $500.
. If you are a participant in the Fund's Automatic Investing Plan, your
initial investment may be as low as $250. Your subsequent investments may be
as low as $100 if you participate in the monthly program or $250 if you
participate in the quarterly program. Refer to the section on the Fund's
Automatic Investing Plan for details.
. There is no minimum investment requirement for qualified retirement plans
such as 401(k), pension or profit sharing plans.
Investing Regularly
You may make regular investments in the Fund through any of the following
methods. If you wish to enroll in any of these programs or if you need any
additional information, complete the appropriate section of the Application Form
or contact your securities dealer, your servicing agent, or the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or quarterly
investment in any class of shares. The amount you decide upon will be withdrawn
from your checking account using a pre-authorized check. When the Transfer Agent
receives the money, it will be invested in the class of shares selected at that
day's offering price. Either you or the Fund may discontinue your participation
upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and capital
gains distributions will be reinvested in additional Fund shares at net asset
value. You may elect to receive your distributions in cash or to have your
distributions invested in shares of other Flag Investors funds. To make either
of these elections or to terminate automatic reinvestment, complete the
appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase either class of shares through
a Systematic Purchase Plan. Contact your securities dealer or servicing agent
for details.
HOW TO REDEEM SHARES
You may redeem any class of the Fund's shares through your securities dealer
or servicing agent. Contact them for details on how to enter your order and for
information as to how you will be paid. If you have an account with the Fund
that is in your name, you may also redeem shares by contacting the Transfer
Agent by mail or (if you are redeeming less than $50,000) by telephone. The
Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may require
the following documents before they redeem your shares:
. A letter of instructions specifying your account number and the number of
shares or dollar amount you wish to redeem. All owners of the shares must
sign the letter exactly as their names appear on the account.
. If you are redeeming more than $50,000, you need a guarantee of your
signature. You can obtain one from most banks or securities dealers.
. The Fund does not issue share certificates. 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.
. Any additional documents that may be required if your account is in the name
of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on shares you redeem will be paid on the next dividend
payable date. If you have redeemed all of your shares by that time, the dividend
will be paid to you by check whether or not that is the payment option you have
selected.
If you redeem sufficient shares to reduce your investment to $500 or less, the
Fund has the power to redeem the remaining shares after giving you 60 days'
notice. The Fund reserves the right to redeem shares in kind under certain
circumstances.
If you own Fund shares having a value of at least $10,000, you may arrange to
have some of your shares redeemed monthly or quarterly under the Fund's
Systematic Withdrawal Plan. Each redemption under this plan involves all the tax
and sales charge implications normally associated with Fund redemptions. Contact
your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
TELEPHONE TRANSACTIONS
If your shares are in an account with the Transfer Agent, you may redeem them
in any amount up to $50,000 or exchange them for shares in another Flag
Investors fund by calling the Transfer Agent on any Business Day between the
hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are automatically entitled
to telephone transaction privileges but you may specifically request that no
telephone redemptions or exchanges be accepted for your account. You may make
this election when you complete the Application Form or at any time thereafter
by completing and returning documentation supplied by the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that telephoned instructions are genuine. These procedures include requiring you
to provide certain personal identification information when you open your
account and before you effect each telephone transaction. You may be required to
provide additional telecopied instructions. If these procedures are employed,
neither the Fund nor the Transfer Agent will bear any liability for following
telephone instructions that it reasonably believes to be genuine. Your telephone
transaction request will be recorded.
During periods of extreme economic or market changes, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by mail.
If you hold shares in certificate form, you may not exchange or redeem them by
telephone.
SALES CHARGES
Purchase Price
The price you pay to buy shares will be the Fund's offering price, which is
calculated by adding any applicable sales charges to the net asset value per
share of the class you are buying. The amount of any sales charge included in
your purchase price will be according to the following schedule:
<TABLE>
<CAPTION>
Class A Sales
Charge as % of
Class B Class C
Offering Net Amount Sales Sales
Amount of Purchase Price Invested Charge Charge
<S> <C> <C> <C> <C>
Less than $50,000 5.50% 5.82% None None
$50,000 - $99,999 4.50% 4.71% None None
$100,000 - $249,999 3.50% 3.63% None None
$250,000 - $499,999 2.50% 2.56% None None
$500,000 - $999,999 2.00% 2.04% None None
$1,000,000 and over None None None None
</TABLE>
Although you do not pay an initial sales charge when you invest $1,000,000 or
more in Class A Shares or when you buy any amount of Class B or C Shares, you
may pay a sales charge when you redeem your shares. Refer to the section on
redemption price for details. Your securities dealer may be paid a commission at
the time of your purchase.
The sales charge you pay on your current purchase of Class A Shares may be
reduced under the circumstances listed below.
Rights of Accumulation. If you are purchasing additional Class A Shares of
this Fund or Class A shares of any other Flag Investors fund or if you already
have investments in Class A shares, you may combine the value of your purchases
with the value of your existing investments to determine whether you qualify for
a reduced sales charge. (For this purpose your existing investments will be
valued at the higher of cost or current value.) You may also combine your
purchases and investments with those of your spouse and your children under the
age of 21 for this purpose. You must be able to provide sufficient information
to verify that you qualify for this right of accumulation.
Letter of Intent. If you anticipate making additional purchases of Class A
Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to initially
purchase at least 5% of the total. When you make each purchase during the
period, you will pay the sales charge applicable to their combined value. If, at
the end of the 13-month period, the total value of your purchases is less than
the amount you indicated, you will be required to pay the difference between the
sales charges you paid and the sales charges applicable to the amount you
actually did purchase. Some of the shares you own will be redeemed to pay this
difference.
Purchases at Net Asset Value. You may buy Class A Shares without paying a
sales charge under the following circumstances:
. If you are reinvesting some or all of the proceeds of a redemption of Class A
Shares made within the last 90 days.
. If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a description of the
conditions).
. If you are a current or retired Fund Director, a director, an employee or a
member of the immediate family of an employee of any of the following (or
their respective affiliates): the Fund's distributor, the Investment Manager
or a brokerdealer authorized to sell shares of the Fund.
. If you are buying shares in any of the following types of accounts: - A
qualified retirement plan; - A Flag Investors fund payroll savings plan
program; - A fiduciary or advisory account with a bank, bank trust
department,
registered investment advisory company, financial planner or securities
dealer purchasing shares on your behalf. To qualify for this provision
you must be paying an account management fee for the fiduciary or
advisory services. Your securities dealer or servicing agent may charge
you an additional fee if you buy shares in this manner.
Purchases by Exchange
You may exchange Class A, B or C Shares of any other Flag Investors fund for an
equal dollar amount of Class A, B or C Shares, respectively, without payment of
the sales charges described above or any other charge. You may not exchange
Class A shares of a Flag Investors money market fund into the Fund without
payment of the sales charge unless you acquired those shares through a prior
exchange subject to a sales charge. You may enter both your redemption and
purchase orders on the same Business Day or, if you have already redeemed the
shares of the other fund, you may enter your purchase order within 90 days of
the redemption. The Fund may modify or terminate these offers of exchange upon
60 days' notice.
You may request an exchange through your securities dealer or servicing agent.
Contact them for details on how to enter your order. If your shares are in an
account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
The amount of any sales charge deducted from your redemption price will be
determined according to the following schedule.
<TABLE>
<CAPTION>
Sales Charge as a
Percentage of the Dollar
Amount Subject to Charge
Class A Sales Class B Sales Class B Sales
Charge Charge Charge
(as % of (as % of (as % of
Cost or Cost or Cost or
Years Since Purchase Value) Value) Value)
<S> <C> <C> <C>
First 1.00%* 5.00% 1.00%
Second 0.50%* 4.00% None
Third None 3.00% None
Fourth None 3.00% None
Fifth None 2.00% None
Sixth None 1.00% None
Seventh and Thereafter None None None
</TABLE>
* You will pay a sales charge when you redeem Class A Shares only if your shares
were purchased at net asset value because they were part of an investment of
$1 million or more. The 0.50% charge only applies to Class A Shares purchased
on or after January 18, 2000.
Determination of Sales Charge. The sales charge applicable to your redemption
is calculated in a manner that results in the lowest possible rate:
. No sales charge will be applied to shares you own as a result of reinvesting
dividends or distributions.
. If you have purhcased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
. If you acquired your shares through an exchange of shares of another Flag
Investors fund, the period of time you held the original shares will be
combined with the period of time you held the shares being redeemed to
determine the years since purchase. If you bought your shares prior to January
18, 2000, you will pay the sales charge in effect at the time of your original
purchase.
. The sales charge is applied to the lesser of the cost of the shares or their
value at the time of your redemption.
Waiver of Sales Charge. You may redeem shares without paying a sales charge
under any of the following circumstances:
. If you are exchanging your shares for shares of another Flag Investors fund
of the same class.
. If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
. If your redemption represents a distribution from a Systematic Withdrawal
Plan. This waiver applies only if the annual withdrawals under your Plan are
12% or less of your share balance.
. If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
- The account is registered in your name either individually, as a joint
tenant with rights of survivorship, as a participant in community property
or as a minor child under the Uniform Gifts or Uniform Transfers to Minors
Acts.
- Either you or your representative notifies your securities dealer, servicing
agent or the Transfer Agent that such circumstances exist.
. If you are redeeming Class A Shares, your original investment was at least
$3,000,000 and your securities dealer has agreed to return to the Fund's
distributor any payments received when you bought your shares.
Automatic Conversion of Class B Shares. Your Class B Shares, along with any
reinvested dividends or distributions associated with those shares, will be
automatically converted to Class A Shares seven years after your purchase. If
you purchased your shares prior to January 18, 2000, your shares will be
converted to Class A Shares eight years after your purchase. This conversion
will be made on the basis of the relative net asset values of the classes and
will not be a taxable event to you.
HOW TO CHOOSE THE CLASS THAT IS RIGHT FOR YOU
Your decision as to which class of the Fund's shares is best for you should be
based upon a number of factors including the amount of money you intend to
invest and the length of time you intend to hold your shares.
If you choose Class A Shares, you will pay a sales charge when you buy your
shares, but the amount of the charge declines as the amount of your investment
increases. You will pay lower expenses while you hold the shares and, except in
the case of investments of $1,000,000 or more, no sales charge if you redeem
them.
If you choose Class B Shares, you will pay no sales charge when you buy your
shares, but your annual expenses will be higher than Class A Shares. You will
pay a sales charge if you redeem your shares within six years of purchase, but
the amount of the charge declines the longer you hold your shares and, at the
end of seven years, your shares convert to Class A Shares, thus eliminating the
higher expenses.
If you choose Class C Shares, you will pay no sales charge when you buy your
shares or if you redeem them after holding them for at least a year. On the
other hand, expenses on Class C Shares are the same as those on Class B Shares
and, since there is no conversion to Class A Shares at the end of seven years,
the higher expenses continue for as long as you own your shares.
In general, if you intend to invest more than $50,000 your combined sales
charges and expenses are lower with Class A Shares. If you intend to invest less
than $50,000 and expect to hold your shares for more than seven years, your
combined sales charges and expenses are lower with Class B Shares. If you intend
to invest less than $50,000 and expect to hold your shares for less than seven
years, your combined sales charges and expenses are lower with Class C Shares.
Your securities dealer is paid a fee when you buy shares. In addition, your
securities dealer is paid an annual fee as long as you hold your shares. For
Class A and B Shares, this fee begins when you purchase your shares. For Class C
Shares, this fee begins one year after you purchase your shares. Your securities
dealer or servicing agent may receive different levels of compensation depending
upon which class of shares you buy.
Distribution Plans
The Fund has adopted plans under Rule 12b-1 that allow the Fund to pay your
securities dealer or shareholder servicing agent distribution and other fees for
the sale of its shares and for shareholder service. Class A Shares pay an annual
shareholder servicing fee equal to 0.25% of average daily net assets. Class B
and C Shares pay an annual distribution fee equal to 0.75% of average daily net
assets of the respective class and an annual shareholder servicing fee equal to
0.25% of average daily net assets of the respective class. Because these fees
are paid out of net assets on an on-going basis, they will, over time, increase
the cost of your investment and may cost you more than paying other types of
sales charges.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of its
taxable net investment income in the form of annual dividends and to distribute
taxable net capital gains on an annual basis.
Taxes
The following summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its income and capital gains.
The dividends and distributions you receive are subject to federal, state and
local taxation, depending on your tax situation. Distributions you receive from
the Fund may be taxable whether or not you reinvest them. Each sale or exchange
of the Fund's shares is a taxable event.
More information about taxes is in the Statement of Additional Information.
Please contact your tax advisor regarding your specific questions about federal,
state and local income taxes.
FUND MANAGEMENT
A Board of Directors governs the Fund, and a Board of Trustees governs the
Portfolio. The Board of Trustees selects the Manager, Deutsche Fund Management,
Inc. (DFM). The Manager is responsible for managing the Portfolio's assets,
including buying and selling portfolio securities. However, the Manager has
delegated daily management of the Portfolio's assets to the Adviser, who is paid
by the Manager and not by the Portfolio. The Manager and Adviser are registered
investment advisers. The Adviser of the Top 50 US Portfolio is Deutsche Bank
Investment Management Inc. (DBIM). The address for the Manager and DBIM is 280
Park Avenue, New York, NY 10017.
The Fund may withdraw its investment from the Portfolio at any time if the
Fund's 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 and the Adviser are subsidiaries of Deutsche Bank AG, a major
global banking institution. With total assets the equivalent of US$874.8billion
and 90,850 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 the Portfolio.
Other subsidiaries of Deutsche Bank AG include Deutsche Fonds Holding GmbH
(DFH), a company with limited liability organized under the laws of Germany. 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 200 mutual funds, having aggregate assets under
management of more than the equivalent of US $83.7billion as of June 30, 1999.
DFH, along with its subsidiaries, employs approximately 698 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 23.9% 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: best fund manager for 1-, 3- and 5-year periods. These awards were given
to fund managers having 10 or more funds registered for sale in Germany, based
on the manager with the highest number of funds ranked first within various
categories of investment 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 these events took
place. As a result of the plea, however, absent an order from the SEC, DFM 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 Portfolio that is the underlying investments of the
Fund.
Each portfolio manager has served as such since the inception of the Portfolio
in October 1999.
Mr. Leo 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 served as the Managing Director and Head of Investment
Management for the Trust and Investment Advisory Group through 1999. He is Chief
Investment Officer of Bankers Trust Private Banking and Head of Active Equities
for Deutsche Asset Management Americas, supervising funds holding assets under
management of $22.5 billion 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.
Mr. Owen Fitzpatrick has been a Director of DBIM since September 28, 1999. Mr.
Fitzpatrick has 13 years experience in investment management. He joined Bankers
Trust in 1995as Director and Portfolio Manager for Bankers Trust Private Banking
and co-head of the Equity Strategy Group.
Mr. Fitzpatrick supervises funds holding assets under management of $1 billion
as of June 30, 1999. Mr. Fitzpatrick was a Vice President, Portfolio Manager and
Research Analyst for Princeton Bank & Trust Company from 1991 to 1995. Mr.
Fitzpatrick is a Chartered Financial Analyst.
Management and Advisory Fees
The Manager receives an annual fee of 0.85% based on the average daily net
assets of the underlying Portfolios in which the Funds invests. The Manager pays
the Adviser a portion of this fee. The Manager has agreed to waive its fee and
reimburse expenses of the Fund and Portfolio in order to maintain the Fund's
total operating expenses (other than extraordinary expenses) at not more than
the following percentages of average annual net assets of the Share classes
through December 31, 2000: 1.50% for Class A Shares; 2.25% for Class B Shares;
and 2.25% for Class C Shares.
FINANCIAL INFORMATION
The Financial Highlights will help you understand the Fund's financial
performance since its 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 Fund, assuming reinvestment
of any dividends and capital gains.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's audited financial statements, is included in the Annual
Report for the fiscal year ended August 31, 1999. The Annual Report accompanies
the Fund's Statement of Additional Information.
The financial information is presented for the fiscal year ended August 31,
1999 under the name of the Fund in effect at that time (Deutsche Funds, Inc.).
FINANCIAL HIGHLIGHTS
Selected data for a Class A share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
For the Year
For the Period
Ended Ended/1/
August 31,
August 31,
1999 1998
<S> <C>
<C>
Net asset value at beginning of period
$12.62 $ 12.50
Investment
Operations:
Net investment loss
(0.08) (0.03)
Net realized and unrealized gain (loss) on investments, futures contracts
5.35 0.15
and foreign currency allocated from corresponding Deutsche
Portfolio
Increase (decrease) from investment operations
5.27 0.12
Distributions to
Shareholders:
Dividends from net investment income
- -- --
Distributions from net realized gains
- -- --
Total distributions
- -- --
Net asset value at end of period
$17.89 $ 12.62
Total Return (based on net asset value)/2/
41.76% 0.96%*
Ratios and Supplemental
Data:
Net assets, end of period (000's)
$3,370 $ 2,056
Ratios to Average Net
Assets:
Expenses/3/
1.50% 1.50%**
Net investment income (loss)/3/
(0.52)% (0.44)%*
Portfolio turnover of corresponding Deutsche Portfolio
58% 24%*
</TABLE>
1 Commencement of operations............................................10/2/97
2 Total Return based on net asset value, excluding transaction charges, assumes
a purchase of common stock at net asset value at the beginning of each
period, reinvestment of distributions at net asset value and a redemption on
the last day of the period, also at net asset value. During the period, total
return would have been lower had certain expenses not been reimbursed by the
Manager.
3 Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
Expenses to average net assets............................ 5.71% 11.58%**
Net investment loss to average net assets................. (4.73)% (10.52)%**
* Not annualized
** Annualized
FINANCIAL HIGHLIGHTS
Selected data for a Class B share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
For the Year
For the Period
Ended Ended/1/
August
31, August 31,
1999 1998
<S> <C>
<C>
Net asset value at beginning of period
$10.96 $ 12.50
Investment
Operations:
Net investment loss
(0.12) (0.06)
Net realized and unrealized gain (loss) on investments, futures contracts
4.60 (1.48)
and foreign currency allocated from corresponding Deutsche
Portfolio
Increase (decrease) from investment operations
4.48 (1.54)
Distributions to
Shareholders:
Dividends from net investment income
- -- --
Distributions from net realized gains
- -- --
Total distributions
- -- --
Net asset value at end of period
$15.44 $ 10.96
Total Return (based on net asset value)/2/
40.88% (12.32)%*
Ratios and Supplemental
Data:
Net assets, end of period (000's)
$2,764 $ 436
Ratios to Average Net
Assets:
Expenses/3/
2.25% 2.25%**
Net investment loss/3/
(1.30)% (1.35)%*
Portfolio turnover of corresponding Deutsche Portfolio
58% 24%*
</TABLE>
1 Commencement of operations...........................................3/18/93
2 Total Return based on net asset value, excluding transaction charges, assumes
a purchase of common stock at net asset value at the beginning of each
period, reinvestment of distributions at net asset value and a redemption on
the last day of the period, also at net asset value. During the period, total
return would have been lower had certain expenses not been reimbursed by the
Manager.
3 Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
Expenses to average net assets....................... 6.83% 12.33%**
Net investment loss to average net assets............ (5.88)% (11.43)%**
* Not annualized
** Annualized
FINANCIAL HIGHLIGHTS
Selected data for a Class C share of common stock outstanding for the period
September 2, 1998/1/ through August 31, 1999.
<TABLE>
<S>
<C>
$12.50
Net asset value at beginning of
period
Investment
Operations:
Net investment
loss (0.09)
Net realized and unrealized gain on investments, futures
contracts 4.42
and foreign currency allocated from corresponding Deutsche
Portfolio
Increase from investment
operations 4.33
Distributions to
Shareholders:
Dividends from net investment
income --
Distributions from net realized
gains --
Total
distributions
- --
Net asset value at end of
period $16.83
Total Return (based on net asset
value)/2/ 34.64%*
Ratios and Supplemental
Data:
Net assets, end of period
(000's) $ 136
Ratios to Average Net
Assets:
Expenses/3/
2.25%**
Net investment
loss/3/ (1.31)%*
Portfolio turnover of corresponding Deutsche
Portfolio 58%*
</TABLE>
1 Commencement of operations
2 Total Return based on net asset value, excluding transaction charges, assumes
a purchase of common stock at net asset value at the beginning of each
period, reinvestment of distributions at net asset value and a redemption on
the last day of the period, also at net asset value. During the period, total
return would have been lower had certain expenses not been reimbursed by the
Manager.
3 Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
Expenses to average net assets..................................... 7.15%**
Net investment loss to average net assets.......................... (6.21)%**
* Not annualized
** Annualized
[Flag Investors Funds]
Flag Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7010
(800) 767-3524
A Statement of Additional Information (SAI) dated December 31, 1999, as revised
on January 18, 2000 is incorporated by reference into this prospectus, as is an
Investors' Guide on How to Buy, Redeem, and Exchange Shares containing
additional information on how to buy and redeem shares. Additional information
about the Fund's investments is contained in the Fund's SAI and Annual and
SemiAnnual Reports to shareholders as they become available. The Annual Report's
Investment Review discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, the Annual Report, Semi-Annual Report and other information
without charge, and make inquiries, call your investment professional or the
Fund at 1-800-767-3524.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
Investment Company Act File No. 811-8227
Cusip 33832F606
Cusip 33832F705
Cusip 33832F804
G02179-16
TOP50USPRO
(01/2000)
[FLAG INVESTORS LOGO]
European Mid-Cap Fund
(formerly Deutsche European Mid-Cap Fund)
Class A Shares, Class B Shares and Class C Shares
Prospectus -- December 31, 1999, as revised January 18, 2000
- -------------------------------------------------------------------------------
This mutual fund (the "Fund") seeks high capital appreciation, and as a
secondary objective, reasonable dividend income.
The Fund offers shares through securities dealers and financial institutions
that act as shareholder servicing agents. You may also buy shares through the
Fund's Transfer Agent. This Prospectus describes Flag Investors Class A Shares
("Class A Shares"), Flag Investors Class B Shares ("Class B Shares") and Flag
Investors Class C Shares ("Class C Shares") of the Fund. These separate classes
give you a choice as to sales charges and Fund expenses. (Refer to the section
on sales charges and to the Application. Also refer to the Investors' Guide on
How to Buy, Redeem, and Exchange Shares, which is incorporated by reference and
contains additional information on how to buy and redeem shares.)
Table of Contents
Investment Objective, Strategies,
Performance and Risk........................... 1
Fees and Expenses.............................. 3
Investment Strategies.......................... 4
Portfolio Investments.......................... 5
Investment Risks............................... 5
The Fund's Net Asset Value..................... 7
How to Buy Shares.............................. 7
How to Redeem Shares........................... 8
Telephone Transactions......................... 9
Sales Charges.................................. 9
How to Choose the Class That is Right for You.. 11
Dividends and Taxes............................ 12
Fund Management................................ 12
Financial Information.......................... 15
- -------------------------------------------------------------------------------
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.
Investment Objectives, Strategies, Performance and Risk
Objectives and Strategies
The Fund is part of a series of Flag Investors Funds, Inc. The 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
Fund and its corresponding Portfolio. For a table of the Fund and its
corresponding Portfolio, see "Organization" in the Fund's Statement of
Additional Information. The Fund does not represent a complete investment
program, and may not be suitable for all investors.
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 (primarily common and preferred stocks) 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.
Risk Profile
All mutual funds take investment risks. Therefore, it is possible to lose
money by investing in the Fund. The primary factors that may reduce the Fund's
returns are listed below.
. Stock market risks -- the value of securities rise and fall;
. Sector risks -- the possibility that certain sectors may underperform other
sectors or the market as a whole;
. Liquidity risks -- the foreign securities in which the Fund invests may
trade infrequently and may be subject to greater fluctuation in price than
other securities;
. Currency risks -- fluctuations in the exchange rate between the U.S. dollar
and foreign currencies;
. Risks of investing in specific regions -- the Fund may invest a significant
portion of its assets in a particular foreign country or geographic region,
which makes the Fund subject to greater currency risk and more susceptible
to adverse impact from actions of foreign governments;
. Risks of foreign investing -- the foreign markets in which the Fund invests
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;
. Risks of investing in emerging market countries -- prices of emerging market
securities in which the Fund invests can be significantly more volatile than
prices of securities in developed countries;
. Risks related to company size -- 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; and
. Risks of non-diversification -- as a non-diversified Fund, the Fund is
allowed to invest a higher percentage of its assets among fewer issuers of
portfolio securities than diversified Funds. This increases the Fund's risks
by magnifying the impact (positively or negatively) that any one issuer has
on the Fund's share price and performance. Despite this ability to invest in
fewer issuers, the Fund generally attempts to maintain exposure to a broad
number of issuers.
The Fund cannot guarantee that it will achieve its investment objective.
The shares of the Fund 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.
Fund Performance
The following unaudited performance information gives you an indication of the
risks of investing in the Fund by comparing its performance with a broad measure
of market performance. Past performance of the Fund does not necessarily predict
future performance. For more current performance information, call 1-800-767-
3524.
Bar Chart. The bar chart represents the 1998 and 1999 calendar year
performance of Class A Shares of the Fund (which is the share class with the
longest operating history). The bar chart does not reflect the maximum sales
charge imposed on Class A Shares. If these charges or fees had been included,
the returns would have been lower. Following the bar chart is the best and worst
calendar quarter performance for Class A Shares during these two calendar year
periods.
Total Return. The Average Annual Total Returns for Class A and B Shares of the
Fund are compared to an appropriate broad-based securities market index for the
periods shown. Unlike the performance information shown in the bar chart, the
Fund's 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 Fund's
performance. You cannot invest directly in an index.
Annual Total Returns (for calendar years ended December 31) - Class A Shares
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of European Mid-Cap Fund as of the
calendar year-end for each of two years.
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 calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1999. The light gray shaded chart features two distinct
vertical bars, shaded in charcoal, and visually representing by height the total
return percentages for the calendar year stated directly at its base. The
calculated total return percentage for Class A Shares of the Fund for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1998 through 1999. The percentages noted are: 24.98% and 28.83%,
respectively.
<TABLE>
<S> <C> <C>
Best quarter (4Q99) 26.67%
Worst quarter (3Q98) -15.56%
</TABLE>
Average Annual Total Return*
(for the periods ended December 31, 1999)
<TABLE>
<CAPTION>
Since Start of
1 Year Performance**
<S> <C> <C>
Class A Shares 21.78% 18.26%
Class B Shares 22.80% 16.12%
MDAX -11.52% -2.19%
</TABLE>
* 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.
**Class A Shares: October 17, 1997
Class B Shares: March 30, 1998
Fees and Expenses
This table describes the fees and expenses of the Fund including those of the
corresponding Portfolio that you may pay if you buy and hold Class A Shares,
Class B Shares or Class C Shares of the Fund.
<TABLE>
<CAPTION>
Class A
Class B Class C
<S> <C>
<C> <C>
Shareholder Fees:
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) 5.50% None None Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption 0.00%*
5.00%** 1.00%***
proceeds, which ever is lower)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) None
None None
(asapercentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
None None
Exchange Fee None
None None
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets) (as a percentage of average net assets)
Management Fee 0.85%
0.85% 0.85%
Distribution and/or Service (12b-1) Fees 0.25%
1.00% 1.00%
Other Expenses 3.02%
2.52% 3.04%
Total Annual Fund Operating Expenses (before fee waivers and expense reimbursements) 4.12%
4.37% 4.89%
Total Reimbursements of Fund Expenses 2.52%
2.02% 2.54%
Total Net Annual Fund Operating Expenses (after fee waivers and expense reimbursements)**** 1.60%
2.35% 2.35%
</TABLE>
- ------------------
* A maximum 1% contingent deferred sales charge may be imposed on
redemptions within one year of certain shares purchased without an initial
sales charge. See "Sales Charges."
** The contingent deferred sales charge declines from the maximum amount to
1% in the sixth year, and 0% thereafter.
*** 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.
**** The Manager has contractually agreed to waive its fees and reimburse
expenses of the Fund through December 31, 2000 to the extent necessary to
maintain the Fund's expense ratio at the level indicated as "Total Net
Annual Fund Operating Expenses (after reimbursements)."
Example:
This Example is intended to help you compare the cost of investing in the
Fund's Class A, B, and C Shares with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund's Class A, B, and C
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 Fund's Class A, B, and C Shares' operating
expenses remain the same during the period. Each of the examples assumes that
the fee waivers and expense reimbursements to the Fund's operating expenses are
in effect for only the first year of the 1, 3, 5 or 10-year periods. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A $704 $1,516 $2,343 $4,474
Class B
Assuming redemption fee $738 $1,451 $2,264 $4,392
Assuming no redemption fee $238 $1,141 $2,055 $4,392
Class C
Assuming redemption fee $338 $1,243 $2,250 $4,778
Assuming no redemption fee $238 $1,243 $2,250 $4,778
</TABLE>
Investment Strategies
A summary of the Fund's principal investment strategy has been provided above.
Below is additional information on the Fund's principal investment strategies.
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. The Fund
tends to have a heavier weighting of its assets in German issuers, although this
can change.
Hedging
The Fund uses hedging transactions to attempt to reduce specific risks. For
example, to protect the Fund against circumstances that would normally cause the
Fund's portfolio securities to decline in value, the Fund may buy or sell a
derivative contract that would normally increase in value under the same
circumstances. The Fund may also attempt to hedge by using forward contracts,
combinations of different derivatives contracts, or derivatives contracts and
securities. The Fund's ability to hedge may be limited by the costs of the
derivatives contracts. The Fund 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 Fund, (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 Fund.
Temporary Defensive Investments
The Fund may temporarily depart from its principal investment strategy by
investing its 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. The Fund 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
Fund to give up greater investment returns to maintain the safety of principal,
that is, the original amount invested by shareholders.
Portfolio Investments
The Fund invests principally in securities of companies that are listed on a
stock exchange or trade on a recognized, regulated market open to the public.
Following are descriptions of the different types of securities that may
comprise the principal securities of the Fund, as explained above and in the
Fund's investment strategy. For purposes of the Fund's investments, convertible
bonds and bonds with warrants are considered equity securities, not fixed income
securities. The Fund may invest in each type of security and its related
subtypes.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it 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 Fund 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.
Foreign Securities
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. 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 Fund may
enter into spot currency trades. In a spot trade, the Fund agrees to exchange
one currency for another at the current exchange rate. The Fund 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 Fund's exposure to currency risks.
Derivative Contracts
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.
Investment Risks
Following are descriptions of the different types of risks that an investment in
the Fund may entail, as previously summarized under "Risk Profile."
Stock Market Risks
The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
Sector Risks
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
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 Fund 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 Fund's performance. Infrequent trading of
securities may also lead to an increase in their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when they want to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
Currency Risks
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.
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.
The 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
The Fund invests a significant portion of its assets in specific regions or
countries, and therefore is 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,
the Fund has invested a substantial portion of its assets in Germany.
Risks of Foreign Investing
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.
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 Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
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.
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
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.
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.
Risks Related to Company Size
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.
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.
Investing in equity securities of mid-sized companies involves risks not
typically associated with investing in comparable securities of large companies.
Assets of the Fund 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 Fund may be subject to greater declines in value
than shares of equity funds investing in the equity securities of large
companies.
Derivative Contracts
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 Fund to the effect of
leverage, and thereby increase the Fund's exposure to the market and loss that
it otherwise would have had if it had not entered into these transactions.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares is
based on the Fund's net asset value per share. When you buy Class A Shares, the
price you pay may be increased by a sales charge. When you redeem any class of
shares, the amount you receive may be reduced by a sales charge. Read the
section on sales charges for details on how and when these charges may or may
not be imposed.
The net asset value per share of the Fund is determined at 4:00 p.m. (Eastern
Time) on each day the New York Stock Exchange is open for business. Because the
Fund owns foreign securities that trade in foreign markets on days the Exchange
is closed, the value of a Fund's assets may change on days you cannot purchase,
redeem or exchange shares. On the day before certain holidays are observed, the
primary trading markets for the Fund may close early, and the Fund also may
close early. You may call the Fund at 1-800-767-3524 for additional information
about whether the Fund will close early before a particular holiday. The Net
Asset Value is calculated by subtracting the liabilities attributable to a class
from its proportionate share of the Fund's assets and dividing the result by the
outstanding shares of the class. Because the different classes have different
distribution or service fees, their net asset values may differ.
The value of shares of the Fund is generally determined based upon the market
value of the portfolio securities held by the underlying Portfolios. When price
quotes for a particular security are not readily available, investments are
priced at their "fair value" using procedures approved by the Fund's Board of
Directors.
You may buy or redeem shares on any day the New York Stock Exchange is open
for business (a "Business Day"). If your order is entered before the net asset
value per share is determined for that day, the price you pay or receive will be
based on that day's net asset value per share. If your order is entered after
the net asset value per share is determined for that day, or after the Fund has
closed early before a holiday, the price you pay or receive will be based on the
next Business Day's net asset value per share.
The following sections (as well as the Investors' Guide on How to Buy, Redeem,
and Exchange Shares) describe how to buy and redeem shares.
HOW TO BUY SHARES
You may buy any class of the Fund's shares through your securities dealer or
through any financial institution that is authorized to act as a shareholder
servicing agent. Contact them for details on how to enter and pay for your
order. You may also buy shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form includes
instructions and is available with this Prospectus.
You may invest in Class A Shares unless you are a defined contribution plan
with assets of $75 million or more.
Your purchase order may not be accepted if the sale of Fund shares has been
suspended or if it is determined that your purchase would be detrimental to the
interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments must
be at least $100. The following are exceptions to these minimums:
If you are investing in an IRA account, your initial investment may be as low
as $1,000.
If you are a shareholder of any other Flag Investors fund, your initial
investment in this Fund may be as low as $500.
If you are a participant in the Fund's Automatic Investing Plan, your initial
investment may be as low as $250. Your subsequent investments may be as low as
$100 if you participate in the monthly program or $250 if you participate in the
quarterly program. Refer to the section on the Fund's Automatic Investing Plan
for details.
There is no minimum investment requirement for qualified retirement plans such
as 401(k), pension or profit sharing plans.
Investing Regularly
You may make regular investments in the Fund through any of the following
methods. If you wish to enroll in any of these programs or if you need any
additional information, complete the appropriate section of the Application Form
or contact your securities dealer, your servicing agent, or the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or quarterly
investment in any class of shares. The amount you decide upon will be withdrawn
from your checking account using a pre-authorized check. When the Transfer Agent
receives the money, it will be invested in the class of shares selected at that
day's offering price. Either you or the Fund may discontinue your participation
upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and capital
gains distributions will be reinvested in additional Fund shares at net asset
value. You may elect to receive your distributions in cash or to have your
distributions invested in shares of other Flag Investors funds. To make either
of these elections or to terminate automatic reinvestment, complete the
appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase either class of shares through
a Systematic Purchase Plan. Contact your securities dealer or servicing agent
for details.
HOW TO REDEEM SHARES
You may redeem any class of the Fund's shares through your securities dealer
or servicing agent. Contact them for details on how to enter your order and for
information as to how you will be paid. If you have an account with the Fund
that is in your name, you may also redeem shares by contacting the Transfer
Agent by mail or (if you are redeeming less than $50,000) by telephone. The
Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may require
the following documents before they redeem your shares:
. A letter of instructions specifying your account number and the number of
shares or dollar amount you wish to redeem. All owners of the shares must
sign the letter exactly as their names appear on the account.
. If you are redeeming more than $50,000, you need a guarantee of your
signature. You can obtain one from most banks or securities dealers.
. The Fund does not issue share certificates. 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.
. Any additional documents that may be required if your account is in the name
of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on shares you redeem will be paid on the next dividend
payable date. If you have redeemed all of your shares by that time, the dividend
will be paid to you by check whether or not that is the payment option you have
selected.
If you redeem sufficient shares to reduce your investment to $500 or less, the
Fund has the power to redeem the remaining shares after giving you 60 days'
notice. The Fund reserves the right to redeem shares in kind under certain
circumstances.
If you own Fund shares having a value of at least $10,000, you may arrange to
have some of your shares redeemed monthly or quarterly under the Fund's
Systematic Withdrawal Plan. Each redemption under this plan involves all the tax
and sales charge implications normally associated with Fund redemptions. Contact
your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
TELEPHONE TRANSACTIONS
If your shares are in an account with the Transfer Agent, you may redeem them
in any amount up to $50,000 or exchange them for shares in another Flag
Investors fund by calling the Transfer Agent on any Business Day between the
hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are automatically entitled
to telephone transaction privileges but you may specifically request that no
telephone redemptions or exchanges be accepted for your account. You may make
this election when you complete the Application Form or at any time thereafter
by completing and returning documentation supplied by the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that telephoned instructions are genuine. These procedures include requiring you
to provide certain personal identification information when you open your
account and before you effect each telephone transaction. You may be required to
provide additional telecopied instructions. If these procedures are employed,
neither the Fund nor the Transfer Agent will bear any liability for following
telephone instructions that it reasonably believes to be genuine. Your telephone
transaction request will be recorded.
During periods of extreme economic or market changes, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by mail.
If you hold shares in certificate form, you may not exchange or redeem them by
telephone.
SALES CHARGES
Purchase Price
The price you pay to buy shares will be the Fund's offering price, which is
calculated by adding any applicable sales charges to the net asset value per
share of the class you are buying. The amount of any sales charge included in
your purchase price will be according to the following schedule:
<TABLE>
<CAPTION>
Class A Sales
Charge as % of
------------------------- Class B Class C
Amount of Purchase Offering Net Amount Sales Sales
Price Invested Charge Charge
<S> <C> <C> <C> <C>
Less than $50,000 5.50% 5.82% None None
$50,000 - $99,999 4.50% 4.71% None None
$100,000 - $249,999 3.50% 3.63% None None
$250,000 - $499,999 2.50% 2.56% None None
$500,000 - $999,000 2.00% 2.04% None None
$1,000,000 and over None None None None
</TABLE>
Although you do not pay an initial sales charge when you invest $ 1,000,000 or
more in Class A Shares or when you buy any amount of Class B or C Shares, you
may pay a sales charge when you redeem your shares. Refer to the section on
redemption price for details. Your securities dealer may be paid a commission at
the time of your purchase.
The sales charge you pay on your current purchase of Class A Shares may be
reduced under the circumstances listed below.
Rights of Accumulation. If you are purchasing additional Class A Shares of
this Fund or Class A shares of any other Flag Investors fund or if you already
have investments in Class A shares, you may combine the value of your purchases
with the value of your existing investments to determine whether you qualify for
a reduced sales charge. (For this purpose your existing investments will be
valued at the higher of cost or current value.) You may also combine your
purchases and investments with those of your spouse and your children under the
age of 21 for this purpose. You must be able to provide sufficient information
to verify that you qualify for this right of accumulation.
Letter of Intent. If you anticipate making additional purchases of Class A
Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to initially
purchase at least 5% of the total. When you make each purchase during the
period, you will pay the sales charge applicable to their combined value. If, at
the end of the 13-month period, the total value of your purchases is less than
the amount you indicated, you will be required to pay the difference between the
sales charges you paid and the sales charges applicable to the amount you
actually did purchase. Some of the shares you own will be redeemed to pay this
difference.
Purchases at Net Asset Value. You may buy Class A Shares without paying a
sales charge under the following circumstances:
. If you are reinvesting some or all of the proceeds of a redemption of Class A
Shares made within the last 90 days.
. If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a description of the
conditions).
. If you are a current or retired Fund Director, a director, an employee or a
member of the immediate family of an employee of any of the following (or
their respective affiliates): the Fund's distributor, the Investment Manager
or a brokerdealer authorized to sell shares of the Fund.
. If you are buying shares in any of the following types of accounts:
- A qualified retirement plan;
- A Flag Investors fund payroll savings plan program;
- A fiduciary or advisory account with a bank, bank trust department,
registered investment advisory company, financial planner or securities
dealer purchasing shares on your behalf. To qualify for this provision you
must be paying an account management fee for the fiduciary or advisory
services. Your securities dealer or servicing agent may charge you an
additional fee if you buy shares in this manner.
Purchases by Exchange
You may exchange Class A, B or C shares of any other Flag Investors fund for
an equal dollar amount of Class A, B or C Shares, respectively, without payment
of the sales charges described above or any other charge. You may not exchange
Class A shares of a Flag Investors money market fund into the Fund without
payment of the sales charge unless you acquired those shares through a prior
exchange subject to a sales charge. You may enter both your redemption and
purchase orders on the same Business Day or, if you have already redeemed the
shares of the other fund, you may enter your purchase order within 90 days of
the redemption. The Fund may modify or terminate these offers of exchange upon
60 days' notice.
You may request an exchange through your securities dealer or servicing agent.
Contact them for details on how to enter your order. If your shares are in an
account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
The amount of any sales charge deducted from your redemption price will be
determined according to the following schedule.
<TABLE>
<CAPTION>
Sales Charge as a
Percentage of the Dollar
Amount Subject to Charge
- --------------------------------------------------------------------------------
Years Since Purchase Class A Sales Class B Sales Class C Sales
Charge Charge Charge
(as % of (as % of (as % of
Cost or Cost or Cost or
Value) Value) Value)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
First 1.00%* 5.00% 1.00%
Second 0.50%* 4.00% None
Third None 3.00% None
Fourth None 3.00% None
Fifth None 2.00% None
Sixth None 1.00% None
Seventh and Thereafter None None None
</TABLE>
* You will pay a sales charge when you redeem Class A Shares only if your shares
were purchased at net asset value because they were part of an investment of
$1 million or more. The 0.50% charge only applies to Class A Shares purchased
on or after January 18, 2000.
Determination of Sales Charge. The sales charge applicable to your redemption
is calculated in a manner that results in the lowest possible rate:
. No sales charge will be applied to shares you own as a result of reinvesting
dividends or distributions.
. If you have purchased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
. If you acquired your shares through an exchange of shares of another Flag
Investors fund, the period of time you held the original shares will be
combined with the period of time you held the shares being redeemed to
determine the years since purchase. If you bought your shares prior to January
18, 2000, you will pay the sales charge in effect at the time of your original
purchase.
. The sales charge is applied to the lesser of the cost of the shares or their
value at the time of your redemption.
Waiver of Sales Charge. You may redeem shares without paying a sales charge
under any of the following circumstances:
. If you are exchanging your shares for shares of another Flag Investors fund
of the same class.
. If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
. If your redemption represents a distribution from a Systematic Withdrawal
Plan. This waiver applies only if the annual withdrawals under your Plan are
12% or less of your share balance.
. If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
- The account is registered in your name either individually, as a joint
tenant with rights of survivorship, as a participant in community
property or as a minor child under the Uniform Gifts or Uniform
Transfers to Minors Acts.
- Either you or your representative notifies your securities dealer,
servicing agent or the Transfer Agent that such circumstances exist.
. If you are redeeming Class A Shares, your original investment was at least
$3,000,000 and your securities dealer has agreed to return to the Fund's
distributor any payments received when you bought your shares.
Automatic Conversion of Class B Shares. Your Class B Shares, along with any
reinvested dividends or distributions associated with those shares, will be
automatically converted to Class A Shares seven years after your purchase. If
you purchased your shares prior to January 18, 2000, your shares will be
converted to Class A Shares eight years after your purchase. This conversion
will be made on the basis of the relative net asset values of the classes and
will not be a taxable event to you.
HOW TO CHOOSE THE CLASS THAT IS RIGHT FOR YOU
Your decision as to which class of the Fund's shares is best for you should be
based upon a number of factors including the amount of money you intend to
invest and the length of time you intend to hold your shares.
If you choose Class A Shares, you will pay a sales charge when you buy your
shares, but the amount of the charge declines as the amount of your investment
increases. You will pay lower expenses while you hold the shares and, except in
the case of investments of $1,000,000 or more, no sales charge if you redeem
them.
If you choose Class B Shares, you will pay no sales charge when you buy your
shares, but your annual expenses will be higher than Class A Shares. You will
pay a sales charge if you redeem your shares within six years of purchase, but
the amount of the charge declines the longer you hold your shares and, at the
end of seven years, your shares convert to Class A Shares, thus eliminating the
higher expenses.
If you choose Class C Shares, you will pay no sales charge when you buy your
shares or if you redeem them after holding them for at least a year. On the
other hand, expenses on Class C Shares are the same as those on Class B Shares
and, since there is no conversion to Class A Shares at the end of seven years,
the higher expenses continue for as long as you own your shares.
In general, if you intend to invest more than $50,000 your combined sales
charges and expenses are lower with Class A Shares. If you intend to invest less
than $50,000 and expect to hold your shares for more than seven years, your
combined sales charges and expenses are lower with Class B Shares. If you intend
to invest less than $50,000 and expect to hold your shares for less than seven
years, your combined sales charges and expenses are lower with Class C Shares.
Your securities dealer is paid a fee when you buy shares. In addition, your
securities dealer is paid an annual fee as long as you hold your shares. For
Class A and B Shares, this fee begins when you purchase your shares. For Class C
Shares, this fee begins one year after you purchase your shares. Your securities
dealer or servicing agent may receive different levels of compensation depending
upon which class of shares you buy.
Distribution Plans
The Fund has adopted plans under Rule 12b-1 that allow the Fund to pay your
securities dealer or shareholder servicing agent distribution and other fees for
the sale of its shares and for shareholder service. Class A Shares pay an annual
shareholder servicing fee equal to 0.25% of average daily net assets. Class B
and C Shares pay an annual distribution fee equal to 0.75% of average daily net
assets of the respective class and an annual shareholder servicing fee equal to
0.25% of average daily net assets of the respective class. Because these fees
are paid out of net assets on an on-going basis, they will, over time, increase
the cost of your investment and may cost you more than paying other types of
sales charges.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of its
taxable net investment income in the form of annual dividends and to distribute
taxable net capital gains on an annual basis.
Taxes
The following summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its income and capital gains.
The dividends and distributions you receive are subject to federal, state and
local taxation, depending on your tax situation. Distributions you receive from
the Fund may be taxable whether or not you reinvest them. Each sale or exchange
of the Fund's shares is a taxable event.
More information about taxes is in the Statement of Additional Information.
Please contact your tax advisor regarding your specific questions about federal,
state and local income taxes.
Fund Management
A Board of Directors governs the Fund, and a Board of Trustees governs the
Portfolio. The Board of Trustees selects the Manager, Deutsche Fund Management,
Inc. (DFM). The Manager is responsible for managing the Portfolio's assets,
including buying and selling portfolio securities. However, the Manager has
delegated daily management of the Portfolio's assets to the Adviser, who is paid
by the Manager and not by the Portfolio. The Manager and Adviser are registered
investment advisers. The Adviser is DWS International Portfolio Management GmbH
(DWS). The address for the Manager is 280 Park Avenue, New York, NY 10017. The
address for DWS is Grueneburgweg 113-115, 60323 Frankfurt am Main, Germany.
The Fund may withdraw its investment from the Portfolio at any time if the
Fund's 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 and the Adviser are subsidiaries of Deutsche Bank AG, a major
global banking institution. With total assets the equivalent of US $874 billion
and 90,850 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 the Portfolio.
Other subsidiaries of Deutsche Bank AG include Deutsche Fonds Holding GmbH
(DFH), a company with limited liability organized under the laws of Germany. 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 200 mutual funds, having aggregate assets under
management of more than the equivalent of US $83 billion as of June 30, 1999.
DFH, along with its subsidiaries, employs approximately 698 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 23.9% 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: best fund manager for 1-, 3- and 5-year periods. These awards were given
to fund managers having 10 or more funds registered for sale in Germany, based
on the manager with the highest number of funds ranked first within various
categories of investment 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 these events took
place. As a result of the plea, however, absent an order from the SEC, DFM and
DWS 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 Manager
Following is the portfolio manager who is primarily responsible for the
day-to-day management of the Portfolio that is the underlying investments of the
Fund. The portfolio manager has served as such since the inception of the
Portfolio in October 1997.
Ms. Elisabeth Weisenhorn has 13 years of experience as an investment manager.
She joined the DWS Group in 1985 as Senior Investment Officer, Head of the
European Equity Team. Ms. Weisenhorn supervises funds holding assets under
management of EUR 13.9 billion ($14.2 billion) as of June 30, 1999. Ms.
Weisenhorn is based at DWS Group's office in Frankfurt, Germany.
Management and Advisory Fees
The Manager receives an annual fee of 0.85% based on the average daily net
assets of the underlying Portfolio in which the Fund invests. The Manager pays
the Adviser a portion of this fee. The Manager has agreed to waive its fee and
reimburse expenses of the Fund and Portfolio in order to maintain the Fund's
total operating expenses (other than extraordinary expenses) at not more than
the following percentages of average annual net assets of the Share classes
through December 31, 2000: 1.60% for Class A Shares; 2.35% for Class B Shares;
and 2.35% for Class C Shares.
Historical Performance of Corresponding DWS Fund
The Fund invests in an underlying Portfolio, the Provesta Portfolio. This
underlying Portfolio (and therefore the 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." Provesta is the only fund
managed by DWS which has substantially similar investment objectives and
strategies as the 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 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 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 its counterpart Portfolio going forward. Investors
should note that the past performance of the DWS Fund is not predictive of the
future performance of the Fund or its underlying Portfolio.
The following table shows the actual total return for the Class A Shares of
the 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 unadjusted investment
performance (net of fees and expenses) of the DWS Fund with the adjustments
indicated below. The figures for Provesta and the indices 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 Provesta/1/
Average Annual Total Return for the Periods Ended August 31, 1999
<TABLE>
<CAPTION>
Historical Performance
in U.S. Dollars (unaudited)
Without
With Sales Sales CDAX Index
MSCI Europe
European Mid-Cap Fund Load/2/ Load/3/ (in U.S. Dollars)/4/ (in
U.S. Dollars)/5/
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C>
One Year 2.9% 8.9%
2.4% 13.7%
10/17/97 to 8/31/99 12.0% 15.4%
16.5% 27.9%
Provesta/1/
- -------------------------------------------------------------------------------------------------------------------------------
One Year 4.3% 10.4%
2.4% 13.7%
Three Years 15.4% 17.6%
14.6% 21.3%
Five Years 13.5% 14.8%
12.2% 18.1%
Ten Years 13.8% 14.5%
11.23% 13.9%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Net Assets as of 8/31/99 were DM 1,508 million (US $813 million). Provesta
commenced investment operations on July 11, 1985.
2 Adjusted to reflect deduction for the maximum sales charge of 5.50% applicable
to Class A Shares.
3 The sales load may be reduced or eliminated on the purchase of Class A Shares
in certain circumstances. See "Sales Charges."
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 second column,
"Without Sales Load." The first 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 Fund's financial
performance since its 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 Fund, assuming reinvestment
of any dividends and capital gains.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's audited financial statements, is included in the Annual
Report for the fiscal year ended August 31, 1999. The Annual Report accompanies
the Fund's Statement of Additional Information.
The financial information is presented for the fiscal year ended August 31,
1999 under the name of the Fund in effect at that time (Deutsche Funds, Inc.).
Financial Highlights
Selected data for a Class A share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
For the Year For the Period
Ended Ended/1/
August 31, August 31,
1999 1998
<S> <C> <C>
Net asset value at beginning of period $ 14.22 $ 12.50
Investment Operations:
Net investment income (loss) (0.01) 0.01
Net realized and unrealized gain on investments,
future contracts and foreign currency allocated 1.26 1.71
from corresponding Deutsche Portfolio
Increase from investment operations 1.25 1.72
Distributions to Shareholders:
Dividends from net investment income
Distributions from net realized gains (0.19)
Total distributions (0.19)
Net asset value at end ofperiod $ 15.28 $ 14.22
Total Return (based on net asset value)/2/ 8.86% 13.76%*
Ratios and Supplemental Data:
Net assets, end of period (000's) $13,907 $ 2,402
Ratios to average net assets:
Expenses/3/ 1.60% 1.60%**
Net investment income (loss)/3/ (0.10)% 0.23%**
Portfolio turnover of corresponding Deutsche Portfolio 89% 82%*
</TABLE>
- ---------------
1 Commencement of operations 10/17/97
2 Total Return based on net asset value, excluding transaction charges, assumes
a purchase of common stock at net asset value at the begin ning of each
period, reinvestment of distributions at net asset value and a redemption on
the last day of the period, also at net asset value. During the period, total
return would have been lower had certain expenses not been reimbursed by the
Manager.
3 Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Man ager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
<TABLE>
<S> <C> <C>
Expenses to average net assets 4.12% 18.86%**
Net investment loss to average net assets (2.62)% (17.03)%**
</TABLE>
*Not annualized
**Annualized
Financial Highlights
Selected data for a Class B share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
For the Year For the Period
Ended Ended/1/
August 31, August
31,
1999
1998
<S> <C>
<C>
Net asset value at beginning of period $ 12.55 $ 12.50
Investment Operations:
Net investment loss (0.11) (0.02)
Net realized and unrealized gain on investments,
future contracts and foreign currency allocated 1.12 0.07
from corresponding Deutsche Portfolio
Increase from investment operations 1.01 0.05
Distributions to Shareholders:
Dividends from net investment income
Distributions from net realized gains (0.19)
Total distributions (0.19)
Net asset value at end ofperiod $ 13.37 $ 12.55
Total Return (based on net asset value)/2/ 8.12% 0.40%*
Ratios and Supplemental Data:
Net assets, end of period (000's) $ 6,940 $ 4,287
Ratios to average net assets:
Expenses/3/ 2.35% 2.35%**
Net investment loss/3/ (1.06)% (0.70)%**
Portfolio turnover of corresponding Deutsche Portfolio 89% 82%*
</TABLE>
- -------------------
1 Commencement of operations 3/30/98
2 Total Return based on net asset value, excluding transaction charges, assumes
a purchase of common stock at net asset value at the begin ning of each
period, reinvestment of distributions at net asset value and a redemption on
the last day of the period, also at net asset value. During the period, total
return would have been lower had certain expenses not been reimbursed by the
Manager.
3 Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Man ager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
<TABLE>
<S> <C> <C>
Expenses to average net assets 4.37% 19.61%**
Net investment loss to average net assets (3.08)% (17.96)%**
</TABLE>
*Not annualized
**Annualized
Financial Highlights
Selected data for a Class C share of common stock outstanding for the period
from September 2, 1998/1/ through August 31, 1999.
<TABLE>
<S> <C>
Net asset value at beginning of period $12.50
Investment Operations:
Net investment loss (0.06)
Net realized and unrealized gain on investments,
futures contracts and foreign currency allocated
from corresponding Deutsche Portfolio 1.32
Increase from investment operations 1.26
Distributions to Shareholders:
Dividends from net investment income
Distributions from net realized gains (0.19)
Total distributions (0.19)
Net asset value at end ofperiod $13.57
Total Return (based on net asset value)/2/ 10.15%* Ratios and Supplemental Data:
Net assets, end of period (000's) $1,698 Ratios to average net assets:
Expenses/3/ 2.35%**
Net investment loss/3/ (0.73)%**
Portfolio turnover of corresponding Deutsche Portfolio 89%*
</TABLE>
- -------------------
1 Commencement of operations
2 Total Return based on net asset value, excluding transaction charges, assumes
a purchase of common stock at net asset value at the begin ning of each
period, reinvestment of distributions at net asset value and a redemption on
the last day of the period, also at net asset value. During the period, total
return would have been lower had certain expenses not been reimbursed by the
Manager.
3 Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Man ager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
<TABLE>
<S> <C>
Expenses to average net assets 4.89%**
Net investment loss to average net assets (3.27)%**
</TABLE>
*Not annualized
**Annualized
[FLAG INVESTORS LOGO]
Flag Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7010
(800) 767-3524
A Statement of Additional Information (SAI) dated December 31, 1999, as revised
on January 18, 2000, is incorporated by reference into this prospectus, as is an
Investors' Guide on How to Buy, Redeem, and Exchange Shares containing
additional information on how to buy and redeem shares. Additional information
about the Fund's investments is contained in the Fund's SAI and Annual and
SemiAnnual Reports to shareholders as they become available. The Annual Report's
Investment Review discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, the Annual Report, Semi-Annual Report and other information
without charge, and make inquiries, call your investment professional or the
Fund at 1-800-767-3524.
You can obtain information about the Fund (including the SAI) by writing to or
visting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
Investment Company Act File No. 811-8227
Cusip 33832F101
Cusip 33832F200
Cusip 33832F309
G02179-17
EMCPRO
(01/2000)
[Flag Investors Logo]
Japanese Equity Fund
(formerly Deutsche Japanese Equity Fund)
Class A Shares and Class B Shares
Prospectus -- December 31, 1999, as revised January 18, 2000
This mutual fund (the "Fund") seeks high capital appreciation.The Fund offers
shares through securities dealers and financial institutions that act as
shareholder servicing agents. You may also buy shares through the Fund's
Transfer Agent. This Prospectus describes Flag Investors Class A Shares ("Class
A Shares") and Flag Investors Class B Shares ("Class B Shares") of the Fund.
These separate classes give you a choice as to sales charges and Fund expenses.
(Refer to the section on sales charges and to the Application. Also refer to the
Investors' Guide on How to Buy, Redeem, and Exchange Shares, which is
incorporated by reference and contains additional information on how to buy and
redeem shares.)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Investment Objective, Strategies,
Performance and Risk........................... 1
Fees and Expenses.............................. 3
Investment Strategies.......................... 4
Portfolio Investments.......................... 4
Investment Risks............................... 5
The Fund's Net Asset Value..................... 6
How to Buy Shares.............................. 7
How to Redeem Shares........................... 7
Telephone Transactions......................... 8
Sales Charges.................................. 8
How to Choose the Class That is Right for You.. 10
Dividends and Taxes............................ 11
Fund Management................................ 11
Financial Information.......................... 11
</TABLE>
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.
INVESTMENT OBJECTIVE, STRATEGIES, PERFORMANCE AND RISK
Objectives and Strategies
The Fund is part of a series of Flag Investors Funds, Inc. The 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
Fund and its corresponding Portfolio. For a table of the Fund and its
corresponding Portfolio, see "Organization" in the Fund's Statement of
Additional Information. The Fund does not represent a complete investment
program, and may not be suitable for all investors.
Investment Objective: High capital appreciation.
Strategy: The Fund invests at least 65% of its total assets in equity securities
(primarily common and preferred stocks) of Japanese companies. 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.
Risk Profile
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
are listed below.
. Stock market risks -- the value of securities rise and fall;
. Sector risks -- the possibility that certain sectors may underperform other
sectors or the market as a whole;
. Liquidity risks -- the foreign securities in which the Fund invests may
trade infrequently and may be subject to greater fluctuation in price than
other securities;
. Currency risks -- fluctuations in the exchange rate between the U.S. dollar
and foreign currencies;
. Risks of investing in specific regions -- the Fund may invest a significant
portion of its assets in a particular foreign country or geographic region,
which makes the Fund subject to greater currency risk and more susceptible
to adverse impact from actions of foreign governments;
. Risks of foreign investing -- the foreign markets in which the Fund invests
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;
. Risks related to company size -- 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; and
. Risks of non-diversification -- as a non- diversified Fund, the Fund is
allowed to invest a higher percentage of its assets among fewer issuers of
portfolio securities than diversified Funds. This increases the Fund's risks
by magnifying the impact (positively or negatively) that any one issuer has
on the Fund's share price and performance. Despite this ability to invest in
fewer issuers, the Fund generally attempts to maintain exposure to a broad
number of issuers.
The Fund cannot guarantee that it will achieve its investment objective.
The shares of the Fund 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.
Fund Performance
The following unaudited performance information gives you an indication of the
risks of investing in the Fund by comparing its performance with a broad measure
of market performance. Past performance of the Fund does not necessarily predict
future performance. For more current performance information, call
1-800-767-3524.
Bar Chart. The bar chart represents the 1998 and 1999 calendar year
performance of Class A Shares of the Fund (which is the share class with the
longest operating history). The bar chart does not reflect the maximum sales
charge imposed on Class A Shares. If these charges or fees had been included,
the returns would have been lower. Following the bar chart is the best and worst
calendar quarter performance for Class A Shares during these two calendar year
periods.
Total Return. The Average Annual Total Returns for Class A and B Shares of the
Fund are compared to an appropriate broad-based securities market index for the
periods shown. Unlike the performance information shown in the bar chart, the
Fund's 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 Fund's
performance. You cannot invest directly in an index.
Annual Total Returns (for calendar years ended December 31)--Class A Shares
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of Japanese Equity Fund as of the
calendar year-end for each of two years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 34.00% up to 170.00%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1999. The light gray shaded chart features two distinct
vertical bars, shaded in charcoal, and visually representing by height the total
return percentages for the calendar year stated directly at its base. The
calculated total return percentage for Class A Shares of the Fund for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1998 through 1999. The percentages noted are: 4.70% and 169.29%,
respectively.
<TABLE>
<S> <C> <C>
Best quarter (4Q99) 33.98 %
Worst quarter (3Q98) -7.02%
</TABLE>
Average Annual Total Return*
(for the periods ended December 31, 1999)
<TABLE>
<CAPTION>
Since Start of
1 Year Performance**
<S> <C> <C>
Class A Shares 154.44% 45.06%
Class B Shares 162.59% 113.85%
MSCI Japan Index 61.53% 19.82%
</TABLE>
* 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
Class B Shares: August 10, 1998
FEES AND EXPENSES
This table describes the fees and expenses of the Fund including those of the
corresponding Portfolio that you may pay if you buy and hold Class A Shares or
Class B Shares of the Fund.
<TABLE>
<CAPTION>
Class A Class B
Shareholder Fees:
(fees paid directly from your investment)
<S>
<C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) 5.50% None Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, 0.00%* 5.00%**
whichever is lower)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) None None
(as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if
applicable) None None
Exchange
Fee
None None
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets) (as a percentage of average net assets)
Management Fee
0.85% 0.85%
Distribution and/or Service (12b-1) Fees
0.25% 1.00%
Other Expenses
4.78% 13.14%
Total Annual Fund Operating Expenses (before fee waivers and expense
reimbursements) 5.88% 14.99% Total Reimbursements of Fund Expenses
4.28% 12.64%
Total Net Annual Fund Operating Expenses (after fee waivers and expense reimbursements)***
1.60% 2.35%
</TABLE>
* A maximum 1% contingent deferred sales charge may be imposed on redemptions
within one year of certain shares purchased without an initial sales charge.
See "Sales Charges."
** The contingent deferred sales charge declines from the maximum amount to 1%
in the sixth year, and 0% thereafter.
*** The Manager has contractually agreed to waive its fees and reimburse
expenses of the Fund through December 31, 2000 to the extent necessary to
maintain the Fund's expense ratio at the level indicated as "Total Net
Annual Fund Operating Expenses (after reimbursements)."
Example:
This Example is intended to help you compare the cost of investing in the
Fund's Class A and B Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A and B 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 Fund's Class A and B Shares' operating expenses remain
the same during the period. Each of the examples assumes that the fee waivers
and expense reimbursements to the Fund's operating expenses are in effect for
only the first year of the 1, 3, 5 or 10-year periods. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1year 3years 5years 10
years
<S> <C> <C> <C>
<C>
Class A $704 $1,843 $2,962
$5,674
Class
B
Assuming redemption fee $738 $3,265 $5,401
$9,197
Assuming no redemption fee $238 $3,016 $5,266
$9,197
</TABLE>
INVESTMENT STRATEGIES
A summary of the Fund's principal investment strategy has been provided above.
Below is additional information on the Fund's principal investment strategies.
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.
Hedging
The Fund uses hedging transactions to attempt to reduce specific risks. For
example, to protect the Fund against circumstances that would normally cause the
Fund's portfolio securities to decline in value, the Fund may buy or sell a
derivative contract that would normally increase in value under the same
circumstances. The Fund may also attempt to hedge by using forward contracts,
combinations of different derivatives contracts, or derivatives contracts and
securities. The Fund's ability to hedge may be limited by the costs of the
derivatives contracts. The Fund 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 Fund, (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 Fund.
Temporary Defensive Investments
The Fund may temporarily depart from its principal investment strategies by
investing its 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. The Fund 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
Fund to give up greater investment returns to maintain the safety of principal,
that is, the original amount invested by shareholders.
PORTFOLIO INVESTMENTS
The Fund invests principally in securities of companies that are listed on a
stock exchange or trade on a recognized, regulated market open to the public.
Following are descriptions of the different types of securities that may
comprise the principal securities of the Funds, as explained above and in the
Fund's investment strategy. For purposes of the Fund's investments, convertible
bonds and bonds with warrants are considered equity securities, not fixed income
securities. The Fund may invest in each type of security and its related
subtypes.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it 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 Fund 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.
Foreign Securities
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. 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 Fund may
enter into spot currency trades. In a spot trade, the Fund agrees to exchange
one currency for another at the current exchange rate. The Fund 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 Fund's exposure to currency risks.
Derivative Contracts
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.
INVESTMENT RISKS
Following are descriptions of the different types of risks that an investment
in the Fund may entail, as previously summarized under "Risk Profile."
Stock Market Risks
The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
The Adviser attempts to manage market risk by limiting the amount the Fund
invest in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
Sector Risks
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
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 Fund 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 Fund's performance. Infrequent trading of
securities may also lead to an increase in their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when they want to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
Currency Risks
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.
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.
Risks of Investing in Specific Countries and Regions
The Fund invests a significant portion of its assets in specific regions or
countries, and therefore is 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,
the Fund has invested a substantial portion of its assets in Japan.
Risks of Foreign Investing
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.
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 Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
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.
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 Related to Company Size
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.
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.
Investing in equity securities of mid-sized companies involves risks not
typically associated with investing in comparable securities of large companies.
Assets of the Fund 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 Fund may be subject to greater declines in value
than shares of equity funds investing in the equity securities of large
companies.
Derivative Contracts
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 Fund to the effect of
leverage, and thereby increase the Fund's exposure to the market and loss that
it otherwise would have had if it had not entered into these transactions.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares is
based on the Fund's net asset value per share. When you buy Class A Shares, the
price you pay may be increased by a sales charge. When you redeem any class of
shares, the amount you receive may be reduced by a sales charge. Read the
section on sales charges for details on how and when these charges may or may
not be imposed.
The net asset value per share of the Fund is determined at 4:00 p.m. (Eastern
Time) on each day the New York Stock Exchange is open for business. Because the
Fund owns foreign securities that trade in foreign markets on days the Exchange
is closed, the value of a Fund's assets may change on days you cannot purchase,
redeem or exchange shares. On the day before certain holidays are observed, the
primary trading markets for the Fund may close early, and the Fund also may
close early. You may call the Fund at 1-800-767-3524 for additional information
about whether the Fund will close early before a particular holiday. The Net
Asset Value is calculated by subtracting the liabilities attributable to a class
from its proportionate share of the Fund's assets and dividing the result by the
outstanding shares of the class. Because the different classes have different
distribution or service fees, their net asset values may differ.
The value of shares of the Fund is generally determined based upon the market
value of the portfolio securities held by the underlying Portfolios. When price
quotes for a particular security are not readily available, investments are
priced at their "fair value" using procedures approved by the Fund's Board of
Directors.
You may buy or redeem shares on any day the New York Stock Exchange is open
for business (a "Business Day"). If your order is entered before the net asset
value per share is determined for that day, the price you pay or receive will be
based on that day's net asset value per share. If your order is entered after
the net asset value per share is determined for that day, or after the Fund has
closed early before a holiday, the price you pay or receive will be based on the
next Business Day's net asset value per share.
The following sections (as well as the Investors' Guide on How to Buy, Redeem,
and Exchange Shares) describe how to buy and redeem shares.
HOW TO BUY SHARES
You may buy any class of the Fund's shares through your securities dealer or
through any financial institution that is authorized to act as a shareholder
servicing agent. Contact them for details on how to enter and pay for your
order. You may also buy shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form includes
instructions and is available with this Prospectus.
You may invest in Class A Shares unless you are a defined contribution plan
with assets of $75 million or more.
Your purchase order may not be accepted if the sale of Fund shares has been
suspended or if it is determined that your purchase would be detrimental to the
interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments must
be at least $100. The following are exceptions to these minimums:
. If you are investing in an IRA account, your initial investment may be as
low as $1,000.
. If you are a shareholder of any other Flag Investors fund, your initial
investment in this Fund may be as low as $500.
. If you are a participant in the Fund's Automatic Investing Plan, your initial
investment may be as low as $250. Your subsequent investments may be as low
as $100 if you participate in the monthly program or $250 if you participate
in the quarterly program. Refer to the section on the Fund's Automatic
Investing Plan for details.
. There is no minimum investment requirement for qualified retirement plans
such as 401(k), pension or profit sharing plans.
Investing Regularly
You may make regular investments in the Fund through any of the following
methods. If you wish to enroll in any of these programs or if you need any
additional information, complete the appropriate section of the Application Form
or contact your securities dealer, your servicing agent, or the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or quarterly
investment in any class of shares. The amount you decide upon will be withdrawn
from your checking account using a pre-authorized check. When the Transfer Agent
receives the money, it will be invested in the class of shares selected at that
day's offering price. Either you or the Fund may discontinue your participation
upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and capital
gains distributions will be reinvested in additional Fund shares at net asset
value. You may elect to receive your distributions in cash or to have your
distributions invested in shares of other Flag Investors funds. To make either
of these elections or to terminate automatic reinvestment, complete the
appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase either class of shares through
a Systematic Purchase Plan. Contact your securities dealer or servicing agent
for details.
HOW TO REDEEM SHARES
You may redeem any class of the Fund's shares through your securities dealer
or servicing agent. Contact them for details on how to enter your order and for
information as to how you will be paid. If you have an account with the Fund
that is in your name, you may also redeem shares by contacting the Transfer
Agent by mail or (if you are redeeming less than $50,000) by telephone. The
Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may require
the following documents before they redeem your shares:
. A letter of instructions specifying your account number and the number of
shares or dollar amount you wish to redeem. All owners of the shares must
sign the letter exactly as their names appear on the account.
. If you are redeeming more than $50,000, you need a guarantee of your
signature. You can obtain one from most banks or securities dealers.
. The Fund does not issue share certificates. 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.
. Any additional documents that may be required if your account is in the name
of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on shares you redeem will be paid on the next dividend
payable date. If you have redeemed all of your shares by that time, the dividend
will be paid to you by check whether or not that is the payment option you have
selected.
If you redeem sufficient shares to reduce your investment to $500 or less, the
Fund has the power to redeem the remaining shares after giving you 60 days'
notice. The Fund reserves the right to redeem shares in kind under certain
circumstances.
If you own Fund shares having a value of at least $10,000, you may arrange to
have some of your shares redeemed monthly or quarterly under the Fund's
Systematic Withdrawal Plan. Each redemption under this plan involves all the tax
and sales charge implications normally associated with Fund redemptions. Contact
your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
TELEPHONE TRANSACTIONS
If your shares are in an account with the Transfer Agent, you may redeem them
in any amount up to $50,000 or exchange them for shares in another Flag
Investors fund by calling the Transfer Agent on any Business Day between the
hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are automatically entitled
to telephone transaction privileges but you may specifically request that no
telephone redemptions or exchanges be accepted for your account. You may make
this election when you complete the Application Form or at any time thereafter
by completing and returning documentation supplied by the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that telephoned instructions are genuine. These procedures include requiring you
to provide certain personal identification information when you open your
account and before you effect each telephone transaction. You may be required to
provide additional telecopied instructions. If these procedures are employed,
neither the Fund nor the Transfer Agent will bear any liability for following
telephone instructions that it reasonably believes to be genuine. Your telephone
transaction request will be recorded.
During periods of extreme economic or market changes, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by mail.
If you hold shares in certificate form, you may not exchange or redeem them by
telephone.
SALES CHARGES
Purchase Price
The price you pay to buy shares will be the Fund's offering price, which is
calculated by adding any applicable sales charges to the net asset value per
share of the class you are buying. The amount of any sales charge included in
your purchase price will be according to the following schedule:
<TABLE>
<CAPTION>
Class A Sales
Charge as % of
Class B
Amount of Purchase Offering Net Amount Sales
Price Invested Charge
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% None
$50,000 - $99,999 4.50% 4.71% None
$100,000 - $249,999 3.50% 3.63% None
$250,000 - $499,999 2.50% 2.56% None
$500,000 - $999,999 2.00% 2.04% None
$1,000,000 and over None None None
</TABLE>
Although you do not pay an initial sales charge when you invest $1,000,000 or
more in Class A Shares or when you buy any amount of Class B Shares, you may pay
a sales charge when you redeem your shares. Refer to the section on redemption
price for details. Your securities dealer may be paid a commission at the time
of your purchase.
The sales charge you pay on your current purchase of Class A Shares may be
reduced under the circumstances listed below.
Rights of Accumulation. If you are purchasing additional Class A Shares of
this Fund or Class A shares of any other Flag Investors fund or if you already
have investments in Class A shares, you may combine the value of your purchases
with the value of your existing investments to determine whether you qualify for
a reduced sales charge. (For this purpose your existing investments will be
valued at the higher of cost or current value.) You may also combine your
purchases and investments with those of your spouse and your children under the
age of 21 for this purpose. You must be able to provide sufficient information
to verify that you qualify for this right of accumulation.
Letter of Intent. If you anticipate making additional purchases of Class A
Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to initially
purchase at least 5% of the total. When you make each purchase during the
period, you will pay the sales charge applicable to their combined value. If, at
the end of the 13-month period, the total value of your purchases is less than
the amount you indicated, you will be required to pay the difference between the
sales charges you paid and the sales charges applicable to the amount you
actually did purchase. Some of the shares you own will be redeemed to pay this
difference.
Purchases at Net Asset Value. You may buy Class A Shares without paying a
sales charge under the following circumstances:
. If you are reinvesting some or all of the proceeds of a redemption of Class A
Shares made within the last 90 days.
. If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a description of the
conditions).
. If you are a current or retired Fund Director, a director, an employee or a
member of the immediate family of an employee of any of the following (or
their respective affiliates): the Fund's distributor, the Investment Manager
or a broker- dealer authorized to sell shares of the Fund.
. If you are buying shares in any of the following types of accounts: - A
qualified retirement plan; - A Flag Investors fund payroll savings plan
program; - A fiduciary or advisory account with a bank, bank trust
department,
registered investment advisory company, financial planner or securities
dealer purchasing shares on your behalf. To qualify for this provision
you must be paying an account management fee for the fiduciary or
advisory services. Your securities dealer or servicing agent may charge
you an additional fee if you buy shares in this manner.
Purchases by Exchange
You may exchange Class A or B shares of any other Flag Investors fund for an
equal dollar amount of Class A or B Shares, respectively, without payment of the
sales charges described above or any other charge. You may not exchange Class A
shares of a Flag Investors money market fund into the Fund without payment of
the sales charge unless you acquired those shares through a prior exchange
subject to a sales charge. You may enter both your redemption and purchase
orders on the same Business Day or, if you have already redeemed the shares of
the other fund, you may enter your purchase order within 90 days of the
redemption. The Fund may modify or terminate these offers of exchange upon 60
days' notice.
You may request an exchange through your securities dealer or servicing agent.
Contact them for details on how to enter your order. If your shares are in an
account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
The amount of any sales charge deducted from your redemption price will be
determined according to the following schedule.
<TABLE>
<CAPTION>
Sales Charge as a
Percentage of the Dollar
Amount Subject to Charge
Class A Sales Class B Sales
Charge Charge
(as % of Cost (as % of Cost
Years Since Purchase or Value) or Value)
<S> <C> <C>
First 1.00%* 5.00%
Second 0.50%* 4.00%
Third None 3.00%
Fourth None 3.00%
Fifth None 2.00%
Sixth None 1.00%
Seventh and Thereafter None None
</TABLE>
* You will pay a sales charge when you redeem Class A Shares only if your shares
were purchased at net asset value because they were part of an investment of
$1 million or more. The 0.50% charge only applies to Class A Shares purchased
on or after January 18, 2000.
Determination of Sales Charge. The sales charge applicable to your redemption
is calculated in a manner that results in the lowest possible rate:
. No sales charge will be applied to shares you own as a result of reinvesting
dividends or distributions.
. If you have purchased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
. If you acquired your shares through an exchange of shares of another Flag
Investors fund, the period of time you held the original shares will be
combined with the period of time you held the shares being redeemed to
determine the years since purchase. If you bought your shares prior to January
18, 2000, you will pay the sales charge in effect at the time of your original
purchase.
. The sales charge is applied to the lesser of the cost of the shares or their
value at the time of your redemption.
Waiver of Sales Charge. You may redeem shares without paying a sales charge
under any of the following circumstances:
. If you are exchanging your shares for shares of another Flag Investors fund
of the same class.
. If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
. If your redemption represents a distribution from a Systematic Withdrawal
Plan. This waiver applies only if the annual withdrawals under your Plan are
12% or less of your share balance.
. If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
- The account is registered in your name either individually, as a joint
tenant with rights of survivorship, as a participant in community property
or as a minor child under the Uniform Gifts or Uniform Transfers to Minors
Acts.
- Either you or your representative notifies your securities dealer,
servicing agent or the Transfer Agent that such circumstances exist.
. If you are redeeming Class A Shares, your original investment was at least
$3,000,000 and your securities dealer has agreed to return to the Fund's
distributor any payments received when you bought your shares.
Automatic Conversion of Class B Shares. Your Class B Shares, along with any
reinvested dividends or distributions associated with those shares, will be
automatically converted to Class A Shares seven years after your purchase. If
you purchased your shares prior to January 18, 2000, your shares will be
converted to Class A Shares eight years after your purchase. This conversion
will be made on the basis of the relative net asset values of the classes and
will not be a taxable event to you.
HOW TO CHOOSE THE CLASS THAT IS RIGHT FOR YOU
Your decision as to which class of the Fund's shares is best for you should be
based upon a number of factors including the amount of money you intend to
invest and the length of time you intend to hold your shares.
If you choose Class A Shares, you will pay a sales charge when you buy your
shares, but the amount of the charge declines as the amount of your investment
increases. You will pay lower expenses while you hold the shares and, except in
the case of investments of $1,000,000 or more, no sales charge if you redeem
them.
If you choose Class B Shares, you will pay no sales charge when you buy your
shares, but your annual expenses will be higher than Class A Shares. You will
pay a sales charge if you redeem your shares within six years of purchase, but
the amount of the charge declines the longer you hold your shares and, at the
end of seven years, your shares convert to Class A Shares, thus eliminating the
higher expenses.
In general, if you intend to invest more than $50,000, your combined sales
charges and expenses are lower with Class A Shares. If you intend to invest less
than $50,000 and expect to hold your shares for more than seven years, your
combined sales charges and expenses are lower with Class B Shares.
Your securities dealer is paid a fee when you buy shares. In addition, your
securities dealer is paid an annual fee as long as you hold your shares. For
Class A and B Shares, this fee begins when you purchase your shares. Your
securities dealer or servicing agent may receive different levels of
compensation depending upon which class of shares you buy.
Distribution Plans
The Fund has adopted plans under Rule 12b-1 that allow the Fund to pay your
securities dealer or shareholder servicing agent distribution and other fees for
the sale of its shares and for shareholder service. Class A Shares pay an annual
shareholder servicing fee equal to 0.25% of average daily net assets. Class B
Shares pay an annual distribution fee equal to 0.75% of average daily net assets
of the respective class and an annual shareholder servicing fee equal to 0.25%
of average daily net assets of the respective class. Because these fees are paid
out of net assets on an on-going basis, they will, over time, increase the cost
of your investment and may cost you more than paying other types of sales
charges.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of its
taxable net investment income in the form of annual dividends and to distribute
taxable net capital gains on an annual basis.
Taxes
The following summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its income and capital gains.
The dividends and distributions you receive are subject to federal, state and
local taxation, depending on your tax situation. Distributions you receive from
the Fund may be taxable whether or not you reinvest them. Each sale or exchange
of the Fund's shares is a taxable event.
More information about taxes is in the Statement of Additional Information.
Please contact your tax advisor regarding your specific questions about federal,
state and local income taxes.
FUND MANAGEMENT
A Board of Directors governs the Fund, and a Board of Trustees governs the
Portfolio. The Board of Trustees selects the Manager, Deutsche Fund Management,
Inc. (DFM). The Manager is responsible for managing the Portfolio's assets,
including buying and selling portfolio securities. However, the Manager has
delegated daily management of the Portfolio's assets to the Adviser, who is paid
by the Manager and not by the Portfolio. The Manager and Adviser are registered
investment advisers. The Adviser is DWS International Portfolio Management GmbH
(DWS). The address for the Manager is 280 Park Avenue, New York, NY 10017. The
address for DWS is Grueneburgweg 113-115, 60323 Frankfurt am Main, Germany.
The Fund may withdraw its investment from the Portfolio at any time if the
Fund's 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 and the Adviser are subsidiaries of Deutsche Bank AG, a major
global banking institution. With total assets the equivalent of US $874.8billion
and 90,850 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 the Portfolio.
Other subsidiaries of Deutsche Bank AG include Deutsche Fonds Holding GmbH
(DFH), a company with limited liability organized under the laws of Germany. 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 200 mutual funds, having aggregate assets under
management of more than the equivalent of US $83.7billion as of June 30, 1999.
DFH, along with its subsidiaries, employs approximately 698 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 23.9% 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: best fund manager for 1-, 3- and 5-year periods. These awards were given
to fund managers having 10 or more funds registered for sale in Germany, based
on the manager with the highest number of funds ranked first within various
categories of investment 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 these events took
place. As a result of the plea, however, absent an order from the SEC, DFM and
DWS 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 Manager
Following is the portfolio manager who is primarily responsible for the
day-to-day management of the Portfolio that is the underlying investments of the
Fund. The portfolio manager has served as such since April 1999.
Ms. Lilian Haag joined the DWS Group as a Portfolio Manager in January 1999,
where she specializes in Japanese equities. She manages funds holding assets
under management of EUR 1.9 billion ($1.9 billion) as of June 30, 1999. Ms. Haag
was involved in Japanese equity sales as an Assistant Manager 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.
Management and Advisory Fees
The Manager receives an annual fee of 0.85% based on the average daily net
assets of the underlying Portfolio in which the Fund invests. The Manager pays
the Adviser a portion of this fee. The Manager has agreed to waive its fee and
reimburse expenses of the Fund and Portfolio in order to maintain the Fund's
total operating expenses (other than extraordinary expenses) at not more than
the following percentages of average annual net assets of the Share classes
through December 31, 2000: 1.60% for Class A Shares; and 2.35% for Class B
Shares.
FINANCIAL INFORMATION
The Financial Highlights will help you understand the Fund's financial
performance since its 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 Fund, assuming reinvestment
of any dividends and capital gains.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's audited financial statements, is included in the Annual
Report for the fiscal year ended August 31, 1999. The Annual Report accompanies
the Fund's Statement of Additional Information.
The financial information is presented for the fiscal year ended August 31,
1999 under the name of the Fund in effect at that time (Deutsche Funds, Inc.).
FINANCIAL HIGHLIGHTS
Selected data for a Class A share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
For the
Year For the Period
Ended Ended/1/
August
31, August 31,
1999 1998
<S>
<C> <C>
Net asset value at beginning of period $
9.85 $ 12.50
Investment
Operations:
Net investment income (loss)
0.00/2/ (0.07)
Net realized and unrealized gain (loss) on investments, futures contracts and foreign
currency
allocated from corresponding Deutsche Portfolio
10.27 (2.58)
Increase (decrease) from investment operations
10.27 (2.65)
Distributions to Shareholders:
Dividends from net investment income
Distributions from net realized gains
Total distributions
Net asset value at end of period $
20.12 $ 9.85
Total Return (based on net asset value)/3/
104.26% (21.20)%*
Ratios and Supplemental
Data:
Net assets, end of period (000's)
$11,010 $ 14
Ratios to Average Net
Assets:
Expenses/4/
1.60% 1.60%**
Net investment loss/4/
(1.29)% (1.00)%**
Portfolio turnover of corresponding Deutsche Portfolio
133% 95%*
</TABLE>
1 Commencement of operations 10/20/97
2 Amount rounds to less than $0.01.
3 Total Return based on net asset value, excluding transaction charges, assumes
a purchase of common stock at net asset value at the beginning of each period,
reinvestment of distributions at net asset value and a redemption on the last
day of the period, also at net asset value. During the period, total return
would have been lower had certain expenses not been reimbursed by the Manager.
4 Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
Expenses to average net assets 5.88% 454.24%**
Net investment loss to average net assets (5.57)% (453.64)%**
* Not annualized
**Annualized
FINANCIAL HIGHLIGHTS
Selected data for a Class B share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
For the Year
For the Period
Ended Ended/1/
August
31, August 31,
1999 1998
<S> <C>
<C>
Net asset value at beginning of period $
12.11 $ 12.50
Investment
Operations:
Net investment income loss
(0.12) (0.01)
Net realized and unrealized gain (loss) on investments, futures contracts and foreign
currency
allocated from corresponding Deutsche Portfolio
12.59 (0.38)
Increase (decrease) from investment operations
12.47 (0.39)
Distributions to
Shareholders:
Dividends from net investment
income
Distributions from net realized
gains
Total
distributions
Net asset value at end of period $
24.58 $ 12.11
Total Return (based on net asset value)/2/
102.97% (3.12)%*
Ratios and Supplemental
Data:
Net assets, end of period (000's) $
4,604 $ 283
Ratios to Average Net
Assets:
Expenses/3/
2.35% 2.35%**
Net investment loss/3/
(1.74)% (1.25)%**
Portfolio turnover of corresponding Deutsche Portfolio
133% 95%*
</TABLE>
1 Commencement of operations 8/10/98 2 Total Return based on net asset value,
excluding transaction charges, assumes
a purchase of common stock at net asset value at the beginning of each period,
reinvestment of distributions at net asset value and a redemption on the last
day of the period, also at net asset value. During the period, total return
would have been lower had certain expenses not been reimbursed by the Manager.
3 Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
Expenses to average net assets 14.99% 454.99%**
Net investment loss to average net assets (14.38)% (453.89)%**
* Not annualized
**Annualized
[Flag Investors Logo]
Flag Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7010
(800) 767-3524
A Statement of Additional Information (SAI) dated December 31, 1999, as revised
on January 18, 2000, is incorporated by reference into this prospectus as is an
Investors' Guide on How to Buy, Redeem, and Exchange Shares containing
additional information on how to buy and redeem shares. Additional information
about the Fund's investments is contained in the Fund's SAI and Annual and
SemiAnnual Reports to shareholders as they become available. The Annual Report's
Investment Review discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, the Annual Report, Semi-Annual Report and other information
without charge, and make inquiries, call your investment professional or the
Fund at 1-800-767-3524.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference room in Washington, D.C. You may also access fund
information from the EDGAR Databases on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
Investment Company Act File No. 811-8227
Cusip 33832F408
Cusip 33832F507
G02179-18
JEFPRO
(01/2000)
[LOGO OF FLAG INVESTORS]
Investing With A Difference(R)
US Money Market Fund
(formerly Deutsche US Money Market Fund)
Class A Shares and Class B Shares
Prospectus--December 31, 1999, as revised January 18, 2000
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
This mutual fund (the "Fund") seeks as high a level of current income as is
consistent with the preservation of capital and the maintenance of liquidity.
The Fund offers shares through securities dealers and through financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. This Prospectus describes Flag Investors
Class A Shares ("Class A Shares") and Flag Investors Class B Shares ("Class B
Shares") of the Fund. These separate classes give you a choice as to sales
charges and Fund expenses. (Refer to the section on sales charges and to the
Application. Also refer to the Investors' Guide on How to Buy, Redeem, and
Exchange Shares, which is incorporated by reference and contains additional
information on how to buy and redeem shares.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Investment Objective, Strategies,
<S> <C>
Performance and Risk............... 1
Fees and Expenses.................
Investment Strategies..............
Portfolio Investments.............. 3
Investment Risks................... 4
The Fund's Net Asset Value......... 5
How to Buy Shares.................. 5
How to Redeem Shares.............. 6
Telephone Transactions............. 7
Dividends and Taxes................ 8
Fund Management.................... 8
Financial Information 9
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
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.
INVESTMENT OBJECTIVE, STRATEGIES, PERFORMANCE AND RISK
- --------------------------------------------------------------------------------
Objectives and Strategies
The Fund is part of a series of Flag Investors Funds, Inc. The 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
Fund and its corresponding Portfolio. For a table of the Fund and its
corresponding Portfolio, see "Organization" in the Fund's Statement of
Additional Information. The Fund does not represent a complete investment
program, and may not be suitable for all investors.
Investment Objective. As high a level of current income as is consistent with
the preservation of capital and the maintenance of liquidity.
Strategy. The Fund seeks to maintain a stable net asset value of $1.00 by
investing only in short-term, high-quality money market instruments.
Risk Profile
All mutual funds take investment risks. Therefore, it is possible to lose
money by investing in the Fund. The primary factors that may reduce the Fund's
returns are listed below.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
. Credit risks -- the possibility that an issuer will default on a security by
failing to pay interest or principal when due; and
. Interest rate risks -- prices of fixed income securities rise and fall in
response to interest rate changes.
The Fund cannot guarantee that it will achieve its investment objective.
The shares of the Fund 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.
Fund Performance
Past performance of the Fund does not necessarily predict future performance.
For more current performance information, call 1-800-767-3524.
Bar Chart. The bar chart represents the 1999 calendar year performance of
Class A Shares of the Fund (which is the share class with the longest operating
history). The Fund's shares are sold without a sales charge. The total return
displayed in the bar chart is based on net asset value. Following the bar chart
is the best and worst calendar quarter performance for Class A Shares during the
calendar period.
Class A Shares
Annual Total Returns (for calendar year-end December 31 1999)
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Class A Shares of US Money Market 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 of the calendar year ended
December 31, 1999 (the earliest first full calendar year end of the Fund's start
of business). 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 1999. 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: 4.73%.
<TABLE>
<S> <C> <C>
Best quarter (4Q99) 1.28%
Worst quarter (2Q99) 1.09%
</TABLE>
Average Annual Total Return
(for the period ended December 31, 1999)
<TABLE>
<CAPTION>
1 Year Since Start of
Performance*
<S> <C> <C>
Class A Shares 4.73% 5.00%
</TABLE>
* Class A Shares: March 25, 1998
FEES AND EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses of the Fund including those of the
corresponding Portfolio that you may pay if you buy and hold Class A Shares or
Class B Shares of the Fund.
<TABLE>
<CAPTION>
Class A Class B
- ------- -------
<S>
<C> <C>
Shareholder Fees:
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) None None Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
whichever is lower)
0.00%* 5.00%*
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) (as a percentage of offering price)
None None
Redemption Fee (as a percentage of amount redeemed, if applicable)
None None
Exchange Fee
None None
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets) (as a percentage of average net assets)
Management Fee
0.15% 0.15%
Distribution and/or Service (12b-1) Fees
0.25% 1.00%
Other Expenses
1.55% 1.03%
Total Annual Fund Operating Expenses (before fee waivers and expense
reimbursements) 1.95% 2.18% Total Reimbursements of Fund Expenses
1.40% 0.88%
Total Net Annual Fund Operating Expenses (after fee waivers and expense reimbursements)***
0.55% 1.30%
</TABLE>
* A maximum 1% contingent deferred sales charge may be imposed on redemptions
within one year of certain shares purchased without an initial sales charge.
See "How to Redeem Shares."
** The contingent deferred sales charge declines from the maximum amount to 1%
in the sixth year, and 0% thereafter.
*** The Manager has contractually agreed to waive its fees and reimburse
expenses of the Fund through December 31, 2000 to the extent necessary to
maintain the Fund's expense ratio at the level indicated as "Total Net
Annual Fund Operating Expenses (after reimbursements)."
Example:
This Example is intended to help you compare the cost of investing in the
Fund's Class A and B Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A and B 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 Fund's Class A and B Shares' operating expenses remain
the same during the period. Each of the examples assumes that the fee waivers
and expense reimbursements to the Fund's operating expenses are in effect for
only the first year of the 1, 3, 5 or 10-year periods. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A....................................................... $ 56 $476 $ 922 $2,161
Class B
Assuming redemption fee....................................... $632 $917 $1,314 $2,444
Assuming no redemption fee.................................... $132 $597 $1,089 $2,444
</TABLE>
INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
A summary of the Fund's principal investment strategy has been provided above.
Below is additional information on the Fund's principal investment strategies.
The Fund purchases high-quality U.S. dollar denominated 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.
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
Following are descriptions of the different types of securities that may
comprise the principal securities of the Fund, as explained above and in the
Fund's investment strategy. The Fund may invest in each type of security and its
related subtypes.
Fixed Income Securities
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 Fund
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 Fund 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.
Commercial Paper. 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. 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. 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. 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.
Repurchase Agreements. 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.
INVESTMENT RISKS
- --------------------------------------------------------------------------------
Following are descriptions of the different types of risks that an investment
in the Fund may entail, as previously summarized under "Risk Profile."
Credit Risks
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 Fund
will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Service. 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
Fund must rely entirely upon the Adviser's credit assessment.
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.
Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement their investment strategies.
Interest Rate Risks
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.
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.
THE FUND'S NET ASSET VALUE
- --------------------------------------------------------------------------------
The price you pay when you buy shares or receive when you redeem shares is based
on the Fund's net asset value per share. When you redeem any class of shares,
the amount you receive may be reduced by a sales charge. Read the section on
redemption price for details on how and when these charges may or may not be
imposed.
The net asset value per share of the Fund is determined at 3:00 p.m. (Eastern
Time) each day the New York Stock Exchange and the Federal Reserve Bank are
open. On the day before certain holidays are observed, the primary trading
markets for the Fund may close early, and the Fund also may close early. You may
call the Fund at 1-800-767-3524 for additional information about whether the
Fund will close early before a particular holiday. The Fund uses the amortized
cost method of valuing portfolio securities and rounds the per share net asset
value to the nearest whole cent. As a result, it is anticipated that the net
asset value of the Fund will remain constant at $1.00 per share. There can be no
assurance, however, that this will always be the case.
The value of shares of the Fund is generally determined based upon the market
value of the portfolio securities held by the underlying Portfolios. When price
quotes for a particular security are not readily available, investments are
priced at their "fair value" using procedures approved by the Fund's Board of
Directors.
You may buy or redeem shares on any day the New York Stock Exchange and the
Federal Reserve Bank are open for business (a "Business Day"). If your order is
entered before the net asset value per share is determined for that day, the
price you pay or receive will be based on that day's net asset value per share.
If your order is entered after the net asset value per share is determined for
that day, or after the Fund has closed early before a holiday, the price you pay
or receive will be based on the next Business Day's net asset value per share.
The following sections (as well as the Investors' Guide on How to Buy, Redeem,
and Exchange Shares) describe how to buy and redeem shares.
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
You may buy any class of the Fund's shares through your securities dealer or
through any financial institution that is authorized to act as a shareholder
servicing agent. Contact them for details on how to enter and pay for your
order. You may also buy shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form includes
instructions and is available with this Prospectus.
Your order to purchase shares is effective only when your securities dealer or
servicing agent receives your order in proper form and federal funds are
available to the Fund for investment. If you pay for shares by check, your check
is normally converted into federal funds within two business days. Your purchase
order may not be accepted if the sale of Fund shares has been suspended or if it
is determined that your purchase would be detrimental to the interests of the
Fund's shareholders. If you purchase shares by check, redemption of those shares
may be restricted. See the section on redemptions below.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments must
be at least $100. The following are exceptions to these minimums:
. If you are investing in an IRA account, your initial investment may be as
low as $1,000.
. If you are a shareholder of any other Flag Investors fund, your initial
investment in this Fund may be as low as $500.
. If you are a participant in the Fund's Automatic Investing Plan, your initial
investment may be as low as $250. Your subsequent investments may be as low as
$100 if you participate in the monthly program or $250 if you participate in
the quarterly program. Refer to the section on the Fund's Automatic Investing
Plan for details.
. There is no minimum investment requirement for qualified retirement plans such
as 401(k), pension or profit sharing plans.
Purchases by Exchange
You may exchange Class A or B shares of any other Flag Investors fund for an
equal dollar amount of Class A or B Shares, respectively, without payment of the
sales charges described above or any other charge. You may not exchange Class A
shares of a Flag Investors money market fund into the Fund without payment of
the sales charge unless you acquired those shares through a prior exchange
subject to a sales charge. You may enter both your redemption and purchase
orders on the same Business Day or, if you have already redeemed the shares of
the other fund, you may enter your purchase order within 90 days of the
redemption. The Fund may modify or terminate these offers of exchange upon 60
days' notice.
You may request an exchange through your securities dealer or servicing agent.
Contact them for details on how to enter your order. If your shares are in an
account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Investing Regularly
You may make regular investments in the Fund through any of the following
methods. If you wish to enroll in any of these programs or if you need any
additional information, complete the appropriate section of the Application Form
or contact your securities dealer, your servicing agent, or the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or quarterly
investment in any class of shares. The amount you decide upon will be withdrawn
from your checking account using a pre-authorized check. When the Transfer Agent
receives the money, it will be invested in the class of shares selected at that
day's offering price. Either you or the Fund may discontinue your participation
upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and capital
gains distributions will be reinvested in additional Fund shares at net asset
value. You may elect to receive your distributions in cash or to have your
distributions invested in shares of other Flag Investors funds. To make either
of these elections or to terminate automatic reinvestment, complete the
appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase Class A Shares through a
Systematic Purchase Plan. Contact your securities dealer or servicing agent for
details.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
You may redeem any class of the Fund's shares through your securities dealer
or servicing agent. Contact them for details on how to enter your order and for
information as to how you will be paid. If you have an account with the Fund
that is in your name, you may also redeem shares by contacting the Transfer
Agent by mail or (if you are redeeming less than $50,000) by telephone. The
Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may require
the following documents before they redeem your shares:
. A letter of instructions specifying your account number and the number of
shares or dollar amount you wish to redeem. All owners of the shares must sign
the letter exactly as their names appear on the account.
. If you are redeeming more than $50,000, you need a guarantee of your
signature. You can obtain one from most banks or securities dealers.
. Any stock certificates representing the shares you are redeeming. The
certificates must be either properly endorsed or accompanied by a duly
executed stock power.
. Any additional documents that may be required if your account is in the name
of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on shares you redeem will be paid on the next dividend
payable date. If you have redeemed all of your shares by that time, the dividend
will be paid to you by check whether or not that is the payment option you have
selected.
If you redeem sufficient shares to reduce your investment to $500 or less, the
Fund has the power to redeem the remaining shares after giving you 60 days'
notice. The Fund reserves the right to redeem shares in kind under certain
circumstances.
If you own Fund shares having a value of at least $10,000, you may arrange to
have some of your shares redeemed monthly or quarterly under the Fund's
Systematic Withdrawal Plan. Each redemption under this plan involves all the tax
and sales charge implications normally associated with Fund redemptions. Contact
your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
If you paid for your purchase of shares by check, redemption of those shares
will be restricted for a period of fifteen calendar days unless you are
redeeming shares through your securities dealer or servicing agent and are using
the proceeds to purchase other securities in that account.
Redemption Price
The amount of any sales charge deducted from your redemption price will be
determined according to the following schedule.
<TABLE>
<CAPTION>
Sales Charge as a
Percentage of the Dollar
Amount Subject to Charge
- --------------------------------------------------------------------------------
Class A Sales Class B Sales
Charge Charge
as % of as % of
Years Since Purchase Cost or Value Cost or Value
<S> <C> <C>
First.......................................... 1.00%* 5.00%
Second......................................... 0.50%* 4.00%
Third.......................................... None 3.00%
Fourth......................................... None 3.00%
Fifth.......................................... None 2.00%
Sixth.......................................... None 1.00%
Seventh and Thereafter......................... None None
</TABLE>
* You will pay a sales charge when you redeem Class A Shares only if your shares
were purchased at net asset value because they were part of an investment of
$1 million or more. The 0.50% charge only applies to Class A Shares purchased
on or after January 18, 2000.
Determination of Sales Charge. The sales charge applicable to your redemption
is calculated in a manner that results in the lowest possible rate:
. No sales charge will be applied to shares you own as a result of reinvesting
dividends or distributions.
. If you have purchased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
. If you acquired your shares through an exchange of shares of another Flag
Investors fund, the period of time you held the original shares will be
combined with the period of time you held the shares being redeemed to
determine the years since purchase. If you bought your shares prior to
January 18, 2000, you will pay the sales charge in effect at the time of
your original purchase.
. The sales charge is applied to the lesser of the cost of the shares or their
value at the time of your redemption.
Waiver of Sales Charge. You may redeem shares without paying a sales charge
under any of the following circumstances:
. If you are exchanging your shares for shares of another Flag Investors fund
of the same class.
. If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
. If your redemption represents a distribution from a Systematic Withdrawal
Plan. This waiver applies only if the annual withdrawals under your Plan are
12% or less of your share balance.
. If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
- The account is registered in your name either individually, as a joint
tenant with rights of survivorship, as a participant in community
property or as a minor child under the Uniform Gifts or Uniform
Transfers to Minors Acts.
- Either you or your representative notifies your securities dealer,
servicing agent or the Transfer Agent that such circumstances exist.
. If you are redeeming Class A Shares, your original investment was at least
$3,000,000 and your securities dealer has agreed to return to the Fund's
distributor any payments received when you bought your shares.
Automatic Conversion of Class B Shares. Your Class B Shares, along with any
reinvested dividends or distributions associated with those shares, will be
automatically converted to Class A Shares seven years after your purchase. If
you purchased your shares prior to January 18, 2000, your shares will be
converted to Class A Shares eight years after your purchase. This conversion
will be made on the basis of the relative net asset values of the classes and
will not be a taxable event to you.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
If your shares are in an account with the Transfer Agent, you may redeem them
in any amount up to $50,000 or exchange them for shares in another Flag
Investors fund by calling the Transfer Agent on any Business Day between the
hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are automatically entitled
to telephone transaction privileges but you may specifically request that no
telephone redemptions or exchanges be accepted for your account. You may make
this election when you complete the Application Form or at any time thereafter
by completing and returning documentation supplied by the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that telephoned instructions are genuine. These procedures include requiring you
to provide certain personal identification information when you open your
account and before you effect each telephone transaction. You may be required to
provide additional telecopied instructions. If these procedures are employed,
neither the Fund nor the Transfer Agent will bear any liability for following
telephone instructions that it reasonably believes to be genuine. Your telephone
transaction request will be recorded.
During periods of extreme economic or market changes, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by mail.
If you hold shares in certificate form, you may not exchange or redeem them by
telephone.
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of its
taxable net investment income in the form of daily dividends and to distribute
any taxable net capital gains on an annual basis.
Taxes
The following summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its income and capital gains.
The dividends and distributions you receive are subject to federal, state and
local taxation, depending on your tax situation. Distributions you receive from
the Fund may be taxable whether or not you reinvest them. Each sale or exchange
of the Fund's shares is a taxable event.
More information about taxes is in the Statement of Additional Information.
Please contact your tax advisor regarding your specific questions about federal,
state and local income taxes.
FUND MANAGEMENT
- --------------------------------------------------------------------------------
A Board of Directors governs the Fund, and a Board of Trustees governs the
Portfolio. The Board of Trustees selects the Manager, Deutsche Fund Management,
Inc. (DFM). The Manager is responsible for managing the Portfolio's assets,
including buying and selling portfolio securities. However, the Manager has
delegated daily management of the Portfolio's assets to the Adviser, who are
paid by the Manager and not by the Portfolio. The Manager and Adviser are
registered investment advisers. The Adviser of the Portfolio is Deutsche Bank
Investment Management Inc. (DBIM). The address for the Manager and DBIM is 280
Park Avenue, New York, NY 10017.
The Fund may withdraw its investment from the Portfolio at any time if the
Fund's 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 and the Adviser are subsidiaries of Deutsche Bank AG, a major
global banking institution. With total assets the equivalent of US $874.8billion
and 90,850 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 the Portfolio.
Other subsidiaries of Deutsche Bank AG include Deutsche Fonds Holding GmbH
(DFH), a company with limited liability organized under the laws of Germany. 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 200 mutual funds, having aggregate assets under
management of more than the equivalent of US $83.7billion as of June 30, 1999.
DFH, along with its subsidiaries, employs approximately 698 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 23.9% 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: best fund manager for 1-, 3- and 5-year periods. These awards were given
to fund managers having 10 or more funds registered for sale in Germany, based
on the manager with the highest number of funds ranked first within various
categories of investment 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 these events took
place. As a result of the plea, however, absent an order from the SEC, DFM 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.
Management and Advisory Fees
The Manager receives an annual fee of 0.15% based on the average daily net
assets of the underlying Portfolio in which the Fund invests. The Manager pays
the Advisers a portion of this fee. The Manager has agreed to waive its fee and
reimburse expenses of the Fund and Portfolio in order to maintain the Fund's
total operating expenses (other than extraordinary expenses) at not more than
the following percentages of average annual net assets of the Share classes
through December 31, 2000: 0.55% for Class A Shares; and 1.30% for Class B
Shares.
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The Financial Highlights will help you understand the Fund's financial
performance since its inception in March 1998. 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 Fund, assuming reinvestment
of any dividends and capital gains.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's audited financial statements, is included in the Annual
Report for the fiscal year ended August 31, 1999. The Annual Report accompanies
the Fund's Statement of Additional Information.
The financial information is presented for the fiscal year ended August 31,
1999 under the name of the Fund in effect at that time (Deutsche Funds, Inc.).
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a Class A share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
For the
Year For the Period
Ended Ended/1/
August
31, August 31,
1999 1998
<S>
<C> <C>
Net asset value at beginning of period.......................................................... $
1.00 $ 1.00
- ------- -------
Investment Operations:
Net investment income...........................................................................
0.05 0.02
Net realized and unrealized gain (loss) on investments, futures contracts and foreign currency
allocated from corresponding Deutsche Portfolio...............................................
- -- --
- ------- -------
Increase from investment operations.............................................................
0.05 0.02
- ------- -------
Distributions to Shareholders:
Dividends from net investment income............................................................
(0.05) (0.02)
Distributions from net realized gains...........................................................
- -- --
- ------- -------
Total distributions.............................................................................
(0.05) (0.02)
- ------- -------
Net asset value at end of period................................................................ $
1.00 $ 1.00
======= =======
Total Return (based on net asset value)/2/.......................................................
4.67% 2.46%*
Ratios and Supplemental Data:
Net assets, end of period (000's)...............................................................
$15,083 $ 727
Ratios to Average Net Assets:
Expenses/3/.....................................................................................
0.55% 0.55%**
Net investment income/3/........................................................................
4.55% 5.04%**
- ---------------------------
1 Commencement of
operations...................................................................... 3/25/98
2 Total Return based on net asset value, excluding transaction charges, assumes
a purchase of common stock at net asset value at
the beginning of each period, reinvestment of distributions at net asset value and a redemption on the last day
of the period,
also at net asset value. During the period, total return would have been lower had certain expenses not been
reimbursed by the
Manager.
3 Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the
Manager not undertaken to reimburse such expenses, the ratios of expenses and
net investment income (loss) to average net assets
would have been as follows:
Net investment income/3/........................................................................
4.55% 5.04%**
Expenses to average net assets....................................................................
1.95% 43.80%**
Net investment income to average net assets.......................................................
3.15% (38.21)%**
* Not annualized
** Annualized
</TABLE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a Class B share of common stock outstanding throughout the
period.
<TABLE>
<CAPTION>
For the Period
Ended/1/
August 31,
1999
- --------------
<S>
<C>
Net asset value at beginning of
period....................................................................... $1.00
- -----
Investment Operations:
Net investment
income........................................................................................ 0.00/2/
Net realized and unrealized gain (loss) on investments, futures contracts and foreign currency allocated
from corresponding Deutsche
Portfolio...................................................................... --
- -----
Increase from investment
operations.......................................................................... 0.00
- -----
Distributions to Shareholders:
Dividends from net investment
income......................................................................... 0.00/2/
Distributions from net realized
gains........................................................................ --
- -----
Total
distributions..........................................................................................
0.00
- -----
Net asset value at end of
period............................................................................. $1.00
=====
Total Return (based on net asset
value)/3/..................................................................... 0.42%*
Ratios and Supplemental Data:
Net assets, end of period
(000's)............................................................................ $121
Ratios to Average Net Assets:
Expenses/4/..................................................................................................
1.30%**
Net investment
income/4/..................................................................................... 3.83%**
1 Commencement of
operations................................................................................... 7/20/99
2 Amount rounds to less than $0.01.
3 Total Return based on net asset value, excluding transaction charges, assumes a purchase of common stock at net
asset value at
the beginning of each period, reinvestment of distributions at net asset value and a redemption on the last day
of the period,
also at net asset value. During the period, total return would have been lower had certain expenses not been
reimbursed by the
Manager.
4 Includes the Fund's allocated portion of the corresponding Deutsche Portfolio's expenses net of expense
reimbursements. Had the
Manager not undertaken to reimburse such expenses, the ratios of expenses and
net investment income (loss) to average net assets
would have been as follows:
Expenses to average net
assets............................................................................... 2.18%**
Net investment income to average net
assets.................................................................. 2.95%**
* Not annualized
**Annualized
</TABLE>
[LOGO OF FLAG INVESTORS]
Investing With A Difference(R)
Flag Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7010
(800) 767-3524
- --------------------------------------------------------------------------------
A Statement of Additional Information (SAI) dated December 31, 1999, as revised
on January 18, 2000, is incorporated by reference into this prospectus, as is an
Investors' Guide on How to Buy, Redeem, and Exchange Shares containing
additional information on how to buy and redeem shares. Additional information
about the Fund's investments is contained in the Fund's SAI and Annual and
SemiAnnual Reports to shareholders as they become available. The Annual Report's
Investment Review discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, the Annual Report, Semi-Annual Report and other information
without charge, and make inquiries, call your investment professional or the
Fund at 1-800-767-3524.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying fees.
Investment Company Act File No. 811-8227
Cusip 33832F846
Cusip 33832F838
- --------------------------------------------------------------------------------
G02179-19
USMMPRO
(01/2000)
Investors' Guide on How to
Buy, Redeem, and Exchange Shares
How to Purchase Shares
If you do not specify the class choice on your Application 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
. Establish an account with the investment professional; and
. Submit your purchase order for Shares to the investment professional as
follows:
. When investing through a registered broker/dealer or investment professional:
European Mid Cap / Top 50 Asia / Top 50 Europe / Japanese Equity
(broker/dealer orders)
Your order will be entered the business day it is received. The
broker/dealer must receive your order by 4:00 p.m. (US Eastern time)
and then forward your order to the Fund before 5:00 p.m. (US Eastern
time). The Fund must receive your payment within three business days.
Top 50 US
Your order will be entered the business day it is received. The
broker/dealer must receive and forward your order to the Fund before
4:00 p.m. (U.S. Eastern time) and the Fund must receive your payment
within three business days.
US Money Market
Your order will be entered the business day it is received. The
broker/dealer or other investment professional must receive and
forward your order to the Fund 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).
Top 50 World
Your order will be entered the business day it is received. The
broker/dealer or other investment professional must receive and
forward your order to the Fund 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 Fund's portfolio securities may trade.
. When investing through other investment professionals:
European Mid Cap/ Top 50 Asia/ Top 50 Europe/ Japanese Equity
Your order will be entered the business day it is received. The
investment professional must receive and forward your order to the
Fund before 4:00 p.m. (US Eastern time) and the Fund must receive your
payment within three business days.
You will become the owner of the Shares and receive dividends when the Fund
receives your payment. Investment professionals should send payments according
to the instructions in the sections "By Wire" or "By Check."
Directly From the Fund
. Establish your account with the Fund by submitting a completed Application;
and
. Send your payment to the Fund by Federal Reserve wire or check.
European Mid Cap/ Top 50 Asia/ Top 50 Europe/ Japanese Equity/
Top 50 US/ Top 50 World You will become the owner of Shares after
the Fund receives your wire or your check. If your check does not
clear, your purchase will be cancelled 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 Fund
receives your wire or your check. 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).
US Money Market
You will become the owner of the Shares after the Fund receives
your wire or your check. If your check does not clear, your
purchase will be cancelled and you could be liable for any losses
or fees the fund or its transfer agent incurs. You begin earning
dividends on the same business 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
Fund. 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.
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 drawn on a U.S. bank. The Fund 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 the Shares begin earning dividends the next
day.
How to Redeem and Exchange Shares
You may redeem or exchange Shares:
. Through an investment professional if you purchased Shares through an
investment professional; or
. 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. Your broker/dealer or other
investment professional is responsible for promptly submitting your requests and
providing proper written instructions to the Fund. Your investment professional
may charge you separate fees and commissions. Your redemption proceeds are
reduced by any applicable contingent deferred sales charge.
Top 50 World
. Your order will be entered the business day it is received. The broker/dealer
or other financial intermediary must receive and forward your order to the
Fund by the later of: (a) the close of regular trading on the NYSE (generally
4:00 p.m. U.S. Eastern time); or (b) the latest close of regular trading on
any European securities exchange on which the Fund's portfolio securities may
trade.
Euro Mid Cap / Top 50 Asia / Top 50 Europe / Japanese Equity
. Your order will be entered the business day it is received. The broker/dealer
must receive your order before 4:00 p.m. U.S. Eastern time and forward your
order to the Fund by 5:00 p.m. (U.S. Eastern time). In the case of other
financial intermediaries, they must forward your order to the Fund before
4:00 p.m. U.S. Eastern time to receive that day's NAV.
Top 50 US
. Your order will be entered the business day it is received. The broker/dealer
or other financial intermediary must receive and forward your order to the
Fund before the close of regular trading on the NYSE (generally 4:00 p.m.
U.S. Eastern time).
US Money Market
. Your order will be entered the business day it is received. The broker/dealer
or other financial intermediary must receive and forward your order to the
Fund 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 Fund at
888-433-8872 once you have completed the appropriate authorization form for
telephone transactions. You may exchange shares between the same class of Shares
of Flag Investors 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 Fund.
US Money Market
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed.
All Other Funds
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Flag Investors Funds, Inc.
c/o Federated Shareholder Services Company
P.O. Box 8612
Boston, MA 02266-8612
Send requests by private courier or overnight delivery services to:
Flag Investors Funds, Inc.
c/o Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
. Fund Name and Share Class, account number and account registration;
. Amount to be redeemed or exchanged;
. Signatures of all shareholders exactly as registered; and
. If exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special
instructions.
Signature Guarantees. Signatures must be guaranteed if:
. Your redemption will be sent to an address other than the address of
record
. Your redemption will be sent to an address of record that was changed
within the last 30 days;
. A redemption is payable to someone other than the shareholder(s) of
record; or
. 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 Application. These payment options require a signature guarantee
if they were not established when the account was opened:
. An electronic transfer to your account at a financial institution that is
an Automated Clearing House member; or
. 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.
You will not accrue interest or dividends on uncashed redemption checks from the
Fund if those checks are undeliverable and returned to the Fund.
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)
o Flag Investors US Money Market Fund (Class A Shares and Class B Shares)
</TABLE>
(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 individual Prospectus for each Flag Investors Funds,
Inc. (formerly Deutsche Funds, Inc.), dated December 31, 1999, as revised
January 18, 2000. 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, or by calling toll-free
1-800-767-3524.
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
DECEMBER 31, 1999, as revised January 18, 2000
Contents
Organization 1
Securities in Which the Portfolios Invest 2
Securities Descriptions, Techniques and Risks 3
What Do Shares Cost? 26
How are the Funds Sold? 28
Redemption 29
Account and Share Information 30
Tax Information 33
Who Manages and Provides Services to the Funds? 34
How Do the Funds Measure Performance? 40
Financial Information 44
Appendices 45
Addresses 58
G02179-03 (01/2000)
COMBFLAGSAI (1/00)
ICC DISTRIBUTORS, INC.
Distributor
<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. The
Corporation changed its name from Deutsche Funds, Inc. effective January 18,
2000. The Corporation currently offers seven Funds. 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 January 18, 2000) 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 is currently comprised of seven portfolios (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 the US Money Market Fund and its corresponding
Portfolio, US Money Market Portfolio (US Dollar).
- --------------------------------------------------------------------------------
Fund Name Corresponding Portfolio
(share classes)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EQUITY FUNDS
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------
US Money Market Fund US Money Market Portfolio (US
(Class A Shares and Class B Shares) Dollar)
- --------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
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.
- -------------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- ---------
European Japanese US Money
Top 50 World Top 50 Top 50 Asia Top 50 Mid-Cap Fund Equity Fund Market Fund
Europe US
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Equity Securities P P P P P P N
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Common Stocks P P P P P P N
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Preferred Stocks A A A A A A N
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Real Estate Investment Trusts A A A A A A N
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Warrants A A A A A A N
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Fixed Income Securities A A A A A A P
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Treasury Securities A A A A A A A
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Agency Securities A A A A A A A
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Corporate Debt Securities A A A A A A P
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Commercial Paper A A A A A A P
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Demand Instruments A A A A A A A
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Insurance Contracts A A A A A A A
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Brady Bonds A A A A A A N
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Taxable Municipal Securities N N N N N N A
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Mortgage Backed Securities A A A A A A A
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Asset Backed Securities A A A A A A A
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Zero Coupon Securities A A A A A A A
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Bank Instruments A A A A A A P
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Credit Enhancement A A A A A A A
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Variable Rate Demand A A A A A A A
Instruments
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Convertible Securities A A A A A A N
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Foreign Securities P P P A P P N
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Depository Receipts A A A A A A A
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Derivative Contracts A A A A A A N
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Futures Contracts A A A A A A N
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Options A A A A A A N
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<PAGE>
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
European Japanese US Money
Top 50 World Top 50 Top 50 Asia Top 50 Mid-Cap Fund Equity Fund Market Fund
Europe US
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Special Transactions
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Borrowing A A A A A A A
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Repurchase Agreements A A A A A A P
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Reverse Repurchase Agreements A A A A A A A
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Delayed Delivery Transactions A A A A A A A
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Securities Lending A A A A A A A
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Investing in Securities of Other A A A A A A N
Investment Companies
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
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.
Although not a principal investment strategy, the Top 50 World Portfolio (and
the Top 50 World) is able to invest up to 20% of its net assets in investment
grade fixed income securities (excluding bank deposits and money market
instruments).
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. Although not a principal investment strategy, the
Portfolio is able to invest up to 20% of its net assets in investment grade
fixed income securities (excluding bank deposits and money market instruments).
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. Although not a principal
investment strategy, the Portfolio is able to invest up to 20% of its net assets
in investment grade fixed income securities (excluding bank deposits and money
market instruments).
Although not a principal investment strategy, the Top 50 US Portfolios (and the
Top 50 US) is able to invest up to 20% of its net assets in investment grade
fixed income securities (excluding bank deposits and money market instruments).
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. While the Portfolio 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).
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. While the
Portfolio 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).
<PAGE>
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.
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 except Inverse Floaters do not apply
to the US Money Market Fund) 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.
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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.
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.
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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.
Investment Ratings (Equity Funds)
The fixed income securities in which the underlying Portfolios 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 Portfolio must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
Securities rated BBB have speculative characteristics.
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.
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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.
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.
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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 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.
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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.
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.
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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 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.
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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.
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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.
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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
<PAGE>
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 US Money Market Fund may loan portfolio securities up to 30% of
the total value of the Portfolio but will not make a loan in 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.
<PAGE>
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 FUND
Following are descriptions of the short-term securities the Portfolio underlying
the US Money Market Fund may purchase. However, other such securities not
mentioned below may be purchased for the Fund if they meet the quality and
maturity guidelines set forth in the Fund's 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.
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
<PAGE>
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 Fund 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.
<PAGE>
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
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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.
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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 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. Leverage risk may exist when a Portfolio purchases
securities while it also has borrowed money.
Risk Management (Equity Funds)
o 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.
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, a
Portfolio will lose money. Credit risk is only a risk for a Portfolio if it
invests in fixed income securities or chooses to lend securities.
o Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Service. 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, a Portfolio 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 a Portfolio will fail to meet its obligations. This could cause
the Portfolio to lose the benefit of the transaction or prevent the
Portfolio from selling or buying other securities to implement their
investment strategies.
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Interest Rate Risks (All Funds)
o Interest rate risks apply to the Portfolios underlying the Funds only 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.
Prepayment Risks (All 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 (US Money Market Fund)
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 US Money
Market Fund 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.
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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)
o 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.
o 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)
o 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 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.
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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" which is defined as a 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. 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 and except with respect to borrowing money, 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, futures contracts, forward commitments,
swaps and transactions in repurchase agreements are not deemed to be senior
securities.
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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);
<PAGE>
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 (US Money Market Fund)
The 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,
the Fund and the Portfolio may not (except that the Corporation may invest all
of the 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
Fund, 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.
<PAGE>
9. Purchase securities on margin, make short sales of securities or maintain a
short position, provided that this restriction is not deemed to be
applicable to the purchase or sale of when-issued securities or of
securities for delivery at a future date.
10. Invest in fixed time deposits with a duration of over seven calendar days,
or in fixed time deposits with a duration of from two business days to
seven calendar days if more than 10% of its total assets would be invested
in such deposits.
11. Acquire securities of other investment companies.
12. Act as an underwriter of securities.
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 (US Money Market Fund)
In order to comply with certain federal statutes and policies neither the
Portfolio nor the Fund may as a matter of operating policy (except that the 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 US Money Market Fund may follow non-fundamental operational policies
that are more restrictive than its 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 Fund
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. The
Fund will determine the effective maturity of its investments according to
the Rule. The 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 Fund 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, the 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, the 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.
<PAGE>
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 Fund's and the Portfolio's investment restrictions
relating to any particular investment practice or policy are not
consistent, the Portfolio has agreed with the Corporation, on behalf of the
Fund, 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 (US Money Market Fund)
The net asset value of the Fund's Shares is determined each day the New York
Stock Exchange (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 Fund is made once
during each such day as of 3:00 p.m. (U.S. Eastern time) by subtracting from the
value of the 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 outstanding at the time the determination is made.
It is anticipated that the net asset value of each Share class and the 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 Fund is determined. The value of the 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 1940
Act. 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.
<PAGE>
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.
<PAGE>
Tax Treatment of Reinvestments
Generally, a reinvestment of the proceeds of a redemption of shares in a Fund
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.
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 in August 1995, 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.
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 US
Money Market Fund) 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.
<PAGE>
Under the Service Plan, each Fund pays to ICC Distributors, Inc. 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. ICC
Distributors, Inc. determines the amounts to be paid to investment
professionals, the schedules of such fees and the basis upon which such fees
will be paid.
Furthermore, with respect to Class A Shares, Class B Shares and Class C Shares,
the Distributor may offer to pay a fee from its own assets to financial
institutions as financial assistance for providing substantial sales services,
distribution related support services, or shareholder services.
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.
REDEMPTION
The Fund may suspend the right of redemption or postpone the date of payment
during any period when (a) trading on the New York Stock Exchange is restricted
by applicable rules and regulations of the SEC; (b) the New York Stock Exchange
is closed for other than customary weekend and holiday closings; (c) the SEC has
by order permitted such suspension; or (d) an emergency exists as determined by
the SEC so that valuation of the net assets of the Fund is not reasonably
practicable.
Under normal circumstances, the Fund will redeem Shares by check or by wire
transfer of funds, as described in the Prospectuses. However, if the Board of
Directors determines that it would be in the best interests of the remaining
shareholders, the Fund will make payment of the redemption price in whole or in
part by a distribution of readily marketable securities from the portfolio of
the Fund in lieu of cash, in conformity with applicable rules of the SEC. If
Shares are redeemed in kind, the redeeming shareholder will incur brokerage
costs in later converting the assets into cash. The method of valuing portfolio
securities is described under "What Do Shares Cost?," and such valuation will be
made as of the same time the redemption price is determined. The Fund, however,
has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which it
is obligated to redeem Shares solely in cash up to the lesser of $250,000 or 1%
of its net asset value during any 90-day period for any one shareholder.
Certain changes in a Portfolio's investment objective, policies or restrictions,
or a failure by a Fund's shareholders to approve a change in its corresponding
Portfolio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribution)
from the Portfolio which may or may not be readily marketable. The distribution
in kind may result in the Fund having a less diversified portfolio of
investments or adversely affect the Fund's liquidity, and the Fund could incur
brokerage, tax or other charges in converting the securities to cash.
<PAGE>
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 in the Prospectuses. 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 January 11, 2000, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Shareholder Name
Fund Address Share Class Percentage Owned
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Top 50 World Fidelity Investments Institutional Class A 19.49%
Operations Co. Inc.
Covington, KY
Donaldson Lufkin Jenrette Securities Class A 6.92%
Corporation Inc.
Jersey City, NJ
Merrill Lynch Pierce Fenner & Smith Class B 21.29%
Jacksonville, FL
Parker Hunter Incorporated Class B 16.89%
Pittsburgh, PA
- ------------------------------------ ----------------------------------------- -------------- ----------------------
<PAGE>
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Shareholder Name
Fund Address Share Class Percentage Owned
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Top 50 Europe Fidelity Investments Institutional Class A 32.74%
Operations Co. Inc.
Covington, KY
Merrill Lynch Pierce Fenner & Smith Class A 19.78%
Jacksonville, FL Class B 52.47%
Class C 79.54%
Batrus & Co. Class A 19.37%
New York, NY
Domingo Pagan Class A 6.36%
San Juan, PR
Advest Inc. Class C 5.47%
Hartford, CT
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Top 50 Asia Deutsche Bank Securities, Inc. Class A 66.40%
New York, NY
Merrill Lynch Pierce Fenner & Smith Class A 12.28%
Jacksonville, FL Class B 80.36%
Fidelity Investments Institutional Class A 9.85%
Operations Co. Inc.
Covington, KY
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Top 50 US Fidelity Investments Institutional Class A 26.52%
Operations Co. Inc.
Covington, KY
Batrus & Co. Class A 14.61%
New York, NY
Donaldson Lufkin Jenrette Securities Class A 12.46%
Corporation Inc.
Jersey City, NJ
Deutsche Bank Securities, Inc. Class A 10.30%
New York, NY
Parker Hunter Incorporated Class B 48.46%
Pittsburgh, PA
Advest Inc. Class C 60.60%
Hartford, CT
Merrill Lynch Pierce Fenner & Smith Class C 39.32%
Jacksonville FL
- ------------------------------------ ----------------------------------------- -------------- ----------------------
European Mid-Cap Fund Deutsche Bank Securities, Inc. Class A 63.49%
New York, NY
Merrill Lynch Pierce Fenner & Smith Class A 15.11%
Jacksonville, FL Class B 65.72%
Class C 85.61%
Donaldson Lufkin Jenrette Securities Class C 5.60%
Corporation Inc.
Jersey City, NJ
- ------------------------------------ ----------------------------------------- -------------- ----------------------
<PAGE>
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Shareholder Name
Fund Address Share Class Percentage Owned
- ------------------------------------ ----------------------------------------- -------------- ----------------------
Japanese Equity Fund Merrill Lynch Pierce Fenner & Smith Class A 37.67%
Jacksonville, FL Class B 71.76%
Wendel & Co. Class A 8.10%
New York, NY
DB Alex. Brown LLC Class B 12.62%
Baltimore, MD
- ------------------------------------ ----------------------------------------- -------------- ----------------------
US Money Market Fund Fidelity Investments Institutional Class A 78.97%
Operations Co. Inc.
Covington, KY
Wexford Clearing Services Corp. Class A 10.61%
Chicago, IL
Sterne Agee & Leach, Inc. Class B 93.00%
Birmingham, AL
Advest Inc. Class B 5.71%
Hartford, CT
- ------------------------------------ ----------------------------------------- -------------- ----------------------
</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.
<PAGE>
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, December 31, 1999. As of that date, the Fund Complex
consisted 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 January 11, 2000, the Fund's Board and Officers as a group owned less than
1% of the Funds' outstanding Class A, B, and Class C 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 $14,000 $27,000
Director/Trustee of the Boards of Hollinger International, Archer Daniels
(since October 9, 1998) Midland and Homestake Mining; Director, Flag Investors
February 3, 1947 Fund Family; Director, the Mitchell Hutchins family of
c/o IEP Advisers LLP funds; Member, Textron Corporation International
1275 Pennsylvania Avenue NW, Advisory Council.
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 $13,500 $41,500
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 Director, BT Insurance Funds.
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, $14,500 $64,000
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; Director, Flag Investors Fund Family; Vice
Suite 261 E. President, Professionally Managed Portfolios and
Phoenix, AZ 85018 Advisors Series Trust.
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
<PAGE>
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
Werner Walbroel President and Chief Executive, German American Chamber $14,000 $45,250
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.;
Director, BT Insurance Funds.
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
<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 Director, Principal, BT Alex. Brown (since July 1998). $0 $0
Assistant Secretary Previous Positions: Assistant General Counsel, Office of
March 27, 1954 the General Counsel, United States Securities and
BT Alex. Brown Inc. Exchange Commission (1993-1998).
One South Street
17th Floor
Baltimore, MD 21202
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
Amy Olmert Vice President, Mutual Funds Administration, Deutsche $0 $0
Assistant Secretary Asset Management (since September 1999); Vice
May 14, 1963 President, Mutual Funds Compliance, DB Alex. Brown LLC
31 West 52nd Street (formerly BT Alex. Brown Incorporated) (1997-1999).
New York, NY 10019 Previous Positions: Senior Manager,
PricewaterhouseCoopers LLP (1988-1997].
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
- -------------------------------- ---------------------------------------------------------- -------------------- -------------------
Joseph Parascondola Assistant Vice President, DFM (since January 1999). $0 $0
Treasurer Previous Positions: Assistant Vice President and
June 5, 1963 Assistant Manager, Weiss, Peck & Greer L.L.C. mutual
31 West 52nd Street funds operations department (1995-1998); Mutual Fund
New York, NY 10019 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 Previous Positions: Group Strategy Department, Deutsche
DWS Deutsche Gesellschaft fuer Bank AG (1992-1995)
Wertpapiersparen mbH,
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 Previous Positions: DIH Deutsche Industrie-Holding GmbH May 7,
1966 & Co. KG (affiliate to Deutsche Bank AG) (1995-1997); DWS Deutsche
Gesellschaft fuer Trainee, Deutsche Bank AG (1994-1995).
Wertpapiersparen mbH,
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.
Until recently, the Glass-Steagall Act and other applicable laws generally
prohibited 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 interpreted these laws as prohibiting 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 from sponsoring,
organizing, or controlling a registered open-end investment company continuously
engaged in the issuance of its shares, such as the Corporation, but not
prohibiting a holding company (or such a foreign bank) or a subsidiary thereof
from acting as investment manager and custodian to such an investment company.
Recent changes in federal statutes and regulations concerning the permissible
activities of banks or trust companies, and future judicial and administrative
decisions and interpretations of the changes to federal statutes and
regulations, will repeal most, if not all, of these prohibitions over the next
year, when the changes take effect.
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.
<PAGE>
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 $168,093,236 for which the Portfolios
paid $89,992 in brokerage commissions.
On August 31, 1999, the Portfolios (including the three Portfolios that
liquidated and closed) owned securities of the following regular broker/dealers:
$388,050, Merrill Lynch & Co., Inc.; and $2,564,249, Nomura Securities Co., Ltd.
For the fiscal year ended August 31, 1999, and 1998, the Portfolios (including
the three Portfolios that liquidated and closed) paid $13,670 and $52,582.83 in
brokerage commissions to Deutsche Bank AG, an affiliated broker, which
represents 2.60% and 12.42% of the aggregate brokerage commissions paid and
22.81% and 16.06% of the aggregate principal amount of trades by affiliated
brokers.
<PAGE>
For the fiscal year ended August 31, 1999, and 1998, the Portfolios (including
the three Portfolios that liquidated and closed) paid $6,781 and $46,008.34 in
brokerage commissions to Deutsche Bank Securities, New York, an affiliated
broker, which represents 1.29% and 10.87% of the aggregate brokerage commissions
paid and 1.38% 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 (including
the three Portfolios that liquidated and closed) paid $0 and $8,815.65 in
brokerage commissions to Morgan Grenfell Asia Securities, Ltd., an affiliated
broker, which represents 0% and 2.08% of the aggregate brokerage commissions
paid and 0% and 2.06% of the aggregate principal amount of trades by affiliated
brokers.
For the fiscal year ended August 31, 1999, and 1998, the Portfolios (including
the three Portfolios that liquidated and closed) paid $69,541 and $2,937.36 in
brokerage commissions to Deutsche Morgan Grenfell, an affiliated broker, which
represents 13.21% and 0.69% of the aggregate brokerage commissions paid and
26.69% 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 Administrator receives a minimum annual fee of $75,000 per Fund,
except that during the first two years of the agreement (commencing in 1997) a
minimum aggregate fee for each Portfolio, corresponding Fund and any other fund
investing in the Portfolio, taken together, of $75,000 for the first year of the
Fund's operation and $125,000 for the second year will be paid to the Operations
Agent (as defined below) and the Administrator.
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 sub-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.
<PAGE>
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
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
Fee Paid Fee Paid
---------------------------- ------------------------ ------------------------ ------------------------
1999 1998* 1999 1998* 1999 1998* 1999 1998*
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
------------
Top 50 World $153,724 $76,939 $23,057 $57,704 $120,354 $67,036 $44,697 $36,556
Portfolio
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
Top 50 Europe $272,729 $87,638 $47,461 $65,728 $114,606 $66,445 $44,583 $36,556
Portfolio
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
Top 50 Asia $389,911 $189,797 $57,526 $142,347 $110,830 $61,738 $44,582 $35,112
Portfolio
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
Top 50 US $210,939 $70,740 $107,156 $49,934 $116,881 $66,335 $44,583 $36,556
Portfolio
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
Provesta $188,736 $31,021 $26,595 $21,897 $112,867 $64,498 $44,583 $34,889
Portfolio
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
Japanese Equity $54,632 $11,948 $7,713 $8,433 $121,732 $65,332 $44,583 $34,445
Portfolio
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
US Money Market $374,550 $215,792 $280,913 $161,844 $62,622 $28,933 $27,855 $56,920
Portfolio
- ----------------- ------------- -------------- ------------ ----------- ------------ ----------- ----------- ------------
</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: Provesta
October 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>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FEES PAID BY THE funds FOR SERVICES for the FISCAL year/periodS ended august 31
- ---------------------------- ---------------------------------- ----------------------------------
Fund Name Administrative Fee Brokerage Commissions Paid
---------------------------------- ----------------------------------
1999 1998* 1999 1998*
- ---------------------------- ---------------- ----------------- ----------------- ----------------
Top 50 World $1,305 $226 $45,307 $46,910
- ---------------------------- ---------------- ----------------- ----------------- ----------------
- ---------------------------- ---------------- ----------------- ----------------- ----------------
Top 50 Europe $5,807 $700 $86,609 $39,913
- ---------------------------- ---------------- ----------------- ----------------- ----------------
- ---------------------------- ---------------- ----------------- ----------------- ----------------
Top 50 Asia $7,197 $197 $214,463 $233,262
- ---------------------------- ---------------- ----------------- ----------------- ----------------
- ---------------------------- ---------------- ----------------- ----------------- ----------------
Top 50 US $3,116 $1,064 $39,461 $24,027
- ---------------------------- ---------------- ----------------- ----------------- ----------------
- ---------------------------- ---------------- ----------------- ----------------- ----------------
European Mid-Cap Fund $10,716 $941 $70,019 $41,688
- ---------------------------- ---------------- ----------------- ----------------- ----------------
- ---------------------------- ---------------- ----------------- ----------------- ----------------
Japanese Equity Fund $2,699 $182 $55,077 $16,547
- ---------------------------- ---------------- ----------------- ----------------- ----------------
- ---------------------------- ---------------- ----------------- ----------------- ----------------
US Money Market Fund $7,443 $120 $0 $0
- ---------------------------- ---------------- ----------------- ----------------- ----------------
</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 Asia
October 17, 1997: European Mid-Cap Fund
October 20, 1997: Japanese Equity Fund
March 25, 1998: 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 $6,809 N/A $2,750 $2,270 N/A
- ----------------------------------- --------------- -------------- ---------------
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
Top 50 Europe $39,389 $4,776 $7,613 $13,130 $1,592
- ----------------------------------- --------------- -------------- ---------------
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
Top 50 Asia $6,194 N/A $25,618 $2,065 N/A
- ----------------------------------- --------------- -------------- ---------------
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
Top 50 US $14,492 $425 $7,012 $4,831 $141
- ----------------------------------- --------------- -------------- ---------------
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
European Mid-Cap Fund $44,243 $7,486 $23,973 $14,748 $2,495
- ----------------------------------- --------------- -------------- ---------------
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
Japanese Equity Fund $9,653 N/A $7,163 $3,218 N/A
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
US Money Market Fund $43 N/A $28,380 $14 N/A
- ----------------------------------- --------------- -------------- --------------- --------------- --------------
</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.
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.
<PAGE>
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 42.19% 41.14% N/A 34.35% 36.14% N/A
19.42%(A) 18.36%(G) 15.93%(A) 15.50%(G)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Top 50 Europe 2.84% 2.06% N/A -2.83% -2.94% N/A
3.70%(A) -3.45%(F) 3.60%(K) 0.67%(A) -6.17%(F) 2.60%(K)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Top 50 Asia 130.00% 128.65% N/A 117.25% 123.65% N/A
24.26%(B) 49.04%(H) 20.57%(B) 46.38%(H)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Top 50 US 41.76% 40.88% N/A 34.01% 35.88% N/A
20.59%(A) 15.60%(E) 34.64%(K) 17.07%(A) 13.01%(E) 33.64%(K)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
European Mid-Cap Fund 8.86% 8.12% N/A 2.86% 3.12% N/A
12.09%(C) 5.93%(F) 10.15%(K) 8.74%(C) 3.17%(F) 9.15%(K)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Japanese Equity Fund 104.26% 102.97% N/A 93.09% 97.97% N/A
29.06%(D) 89.22%(J) 25.19%(D) 85.59%(J)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
US Money Market Fund 4.67% N/A N/A N/A N/A N/A
4.98%(L) 0.42%(M)
- ----------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
</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, 1999.
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 net asset value per Share at the end of the period. The number of Shares
owned at the end of the period is based on the number of Shares purchased at the
beginning of the period with $1,000, less any applicable sales charge, adjusted
over the period by any additional Shares, assuming the annual reinvestment of
all dividends and distributions.
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.
<PAGE>
Yield (US Money Market Fund)
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 4.79% for Class A Shares and 3.92% for Class B 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 1-800-767-3524.
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.
<PAGE>
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 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
<PAGE>
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.
FINANCIAL INFORMATION
The Financial Statements for the Funds for the fiscal year ended August 31,
1999, were audited by PricewaterhouseCoopers LLP and are incorporated herein by
reference to the Annual Report to Shareholders of Deutsche Funds, Inc. (renamed
as Flag Investors Funds, Inc. effective January 18, 2000), 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 40% 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 1,089.12 1,822.10 3,220.5 5,397.50
1999* 1,180.90 EUR 2,190.07 1,927.90 EUR 3,575.50
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.
<PAGE>
For an official listing, the German stock exchanges and pertinent legislation
require public disclosure of all information about an issuer considered material
to an evaluation of the securities to be listed. Applications must further
provide the latest annual financial statements of the issuer with explanatory
notes, including disclosure of any liabilities not shown therein. They must also
furnish details of the issuer to be listed. Generally, DM 0.5 million par value
(i.e., 10,000 shares of DM 50 par value) is considered to be the minimum amount
suitable for full listing. Applications for admission to regulated unlisted
trading must contain essentially similar information as that required for full
listing, but in a condensed form that may be submitted as a memorandum. However,
the document, in lieu of being published, may be deposited with paying agents so
long as reference is made in one of the official stock exchange publications.
Markets in listed securities are generally of the auction type, but a
substantial amount of listed securities also changes hands in inter-bank dealer
markets both on and off the stock exchanges. Prices for active stocks, including
those of larger companies, are quoted continuously during stock exchange hours.
Less active listed and stocks admitted to trading in the regulated unlisted
market are quoted only once a day.
Options on both domestic and foreign stocks have been traded since 1970 although
trading activity is relatively low. There is also active trading in share
warrants, generally issued in conjunction with bonds.
As set forth below under "Role of Banks in German Capital Markets," German
banks, brokers and selected domestic investment trusts are regular members of
the stock exchanges. Banks may deal on a net basis for their own account, as
well as for accounts of domestic and foreign institutional customers during or
after regular stock exchange hours.
Stock Indices
Two principal stock indices in Germany are the DAX Index (Deutscher Aktienindex;
i.e., German Stock Index) and the CDAX German Composite Index (Composite
Deutscher Aktienindex). The DAX Index is composed of the 30 most actively traded
German blue-chip stocks. It represents approximately 70% of the total equity
capital of German exchange-listed companies. Trading in these shares accounts
for approximately 80% 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% 16.28%
4.22%
CDAX -6.39% 44.56% -5.83% 4.75% 22.14% 40.83% 13.99%
3.94%
Dollar-adjusted DAX -8.33% 36.85% 4.12% 15.60% 18.17% 27.63% 24.27%
- -5.81%
Dollar-adjusted CDAX -12.36% 34.85% 5.50% 13.17% 12.61% 22.18% 21.82%
</TABLE>
- -6.07%
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 45% of total trading volume on the
German stock exchanges: Daimler-Chrysler AG with EUR 4.4 billion, Mannesmann AG
with EUR 3.4 billion, Deutsche Bank AG with EUR 3.3 billion, Deutsche Telekom AG
with EUR 3.1 billion, and Allianz AG with EUR 2.1 billion.
The actual float available for public trading is significantly smaller than the
aggregate market value cited above because of the large extent of long-term
holdings by non-financial corporations, family groups and banks. However, the
number of publicly traded shares has been increasing in recent years due to a
reduction in such holdings on the part of certain insurance companies and public
authorities. In addition, the continuing public offerings of equity securities
previously controlled by the federal government have contributed to the growing
size of the float.
Domestic institutional ownership of German equities, while large relative to
that by individuals, is less than that in certain other industrial countries.
The German government is encouraging the expansion of private participation in
the equity markets, and has contributed to this process both directly, through
public sale of government-owned enterprises, as well as indirectly through
fiscal measures.
Set forth in the 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 and Transportation 13.54% 18.36%
Banks and Financial Services 11.99% 17.89%
Chemicals and Pharmaceuticals 8.87% 11.72%
Consumer and Retail 3.35% 4.26%
Insurances 11.67% 7.32%
Machinery and Industry 12.19% 10.39%
Software & Technology 13.83% 9.61%
Utilities and Telecommunications 24.56% 20.46%
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 371stocks
(subject to adjustments).
Primary Markets
The amount of funds raised in equity financings in 1999 as of August 31, was
equal to EUR 17,802.9 million while the number of financings was 113. 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)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1997 1998
1999*
Value 804 833 1,246 6,495 24,807 4,961 6,439
</TABLE>
EUR17,802
* 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.
<PAGE>
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 13,842.17 -9.28% 3.93% 1,086.99 -7.49% 5.98%
1999* 17,436.56 25.97% 30.55% 1,457.02 34.04% 38.92%
</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, August 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 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).
<PAGE>
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 123,220 97,480
1999* 103,454 104,710
* 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, 1,341 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, 519 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.
<PAGE>
The 10 leading Japanese companies on the TSE, by market value, represented 29%
of the total market value of the TSE at August 31, 1999. As of August 31, 1999,
three industrial groups accounted for approximately 35.37% of the total market
value of the TSE: electric appliances, 14.64%; chemicals, 11.99%; and
transportation equipment, 8.74%. The following table sets forth the number of
companies listed on the TSE and market value by industrial group for year-end
1998.
Number of Market Values
Companies ((Y) bils.)
Fishery, Agriculture & Forestry 7 244,000
Mining 9 278,000
Construction 149 7,185,000
Foods 92 9,376,000
Textiles & Apparels 66 3,691,000
Pulp & Paper 23 1,666,000
Chemicals 130 13,810,000
Pharmaceutical 39 12,803,000
Oil & Coal Products 13 1,646,000
Rubber Products 15 2,688,000
Glass & Ceramics Products 39 3,299,000
Iron & Steel 50 4,056,000
Nonferrous Metals 34 2,984,000
Metal Products 51 1,829,000
Machinery 154 9,490,000
Electric Appliances 186 40,275,000
Transportation Equipment 87 24,039,000
Precision Instruments 28 2,456,000
Other Products 55 6,792,000
Electric Power & Gas 17 14,152,000
Land Transportation 39 12,065,00
Marine Transportation 20 862,000
Air Transportation 5 1,148,000
Warehousing & Harbor
Transportation Services 23 660,000
Communication 5 16,229,000
Wholesale Trade 125 7,814,000
Retail Trade 103 15,001,000
Banks 99 32,979,000
Securities 23 3,615,000
Insurance 14 4,803,000
Other Financing Businesses 26 6,518,000
Real Estate 29 2,834,000
Services 83 7,878,000
Total 1,838 275,165,000
Manufacturing 960 129,478,000
Non-Manufacturing 878 145,687,000
Total 1,838 275,165,000
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 for the calendar year 1998, as compared to
calendar year 1997, increased by 378 billion yen to 1,540 billion yen while the
number of financings decreased by 56 to 88. 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.
<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 1 0.3 12 284 35 696 35 88 1,068
Source: Tokyo Stock Exchange, Fact Book 1998.
</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
<PAGE>
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.)
<PAGE>
Moody's Investors Service
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 (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.
<PAGE>
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 US Flag Investors European Mid-Cap Fund Flag
Investors Japanese Equity Fund Flag Investors 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
