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Talking points for Sales Group: For Use During Proxy Solicitation
OVERVIEW
The Flag International Fund is being reorganized. After the Reorganization the
Flag Fund will be a feeder of the Deutsche International Equity Fund (the "IEF
Portfolio").
QUESTIONS ABOUT THE REORGANIZATION TRANSACTION IN GENERAL
Q. Why is the Fund doing the Reorganization transaction?
A. The Fund is small. The Reorganization provides an opportunity for the Fund to
invest in a larger fund with an excellent performance record, and for the Fund's
shareholders to receive added diversification. In the long run, shareholders
also have the potential for reduced overall expenses.
Q. Fund shareholders approved the Reorganization of the Fund in October 1999.
Why are Fund shareholders being asked to approve the Reorganization again?
A. Shareholders are being asked to approve the Reorganization again because the
expected tax effects of the Reorganization have changed.
Q. What are the expected tax effects of the reorganization as of now?
A. If the Reorganization is approved, the Fund expects to immediately recognize
most of its unrealized gains and pay a capital gains distribution to
shareholders.
Q. What will happen if shareholders do not approve the Reorganization?
A. The Fund is relatively small in size. The Fund's advisor has informed the
Board of Directors that if the Reorganization is not approved, the advisor will
likely recommend liquidating the Fund. A complete liquidation of the Fund will
have tax consequences similar to those expected if the Reorganization is
approved.
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QUESTIONS ABOUT TAX EFFECTS
Q. What are the tax effects of the proposed Reorganization.
A. Prior to the Reorganization a capital gains distribution will be paid.
Unless you are in a tax deferred account, such as an IRA account, you will
owe taxes on the amounts distributed. The Reorganization itself is not a
taxable event, and will not create additional taxes.
Q. Will the Reorganization change my cost basis for tax purposes?
A. No.
Your tax basis will be the same as it was before the Reorganization.
Q. The IEF Portfolio has large amounts of unrealized capital gains. By
investing in the Fund, am I picking up a potion of those IEF capital gains?
A. No.
Each Fund or Portfolio is responsible for the amount of its own unrealized
capital gains up to the date of the Reorganization.
Q. What does this mean?
A. This means that shareholders in the Flag International Equity Fund do not
inherit or pick-up liability for the unrealized capital gains in the IEF
Portfolio prior to the Reorganization. Taxes on the amount of these gains,
if and when realized after the Reorganization are the responsibility of the
IEF Portfolio's shareholders.
Of course, Flag Fund shareholders are responsible for the amount of
unrealized capital gains in their Fund as of the date the Reorganization
takes place, if and when gains accumulated before the Reorganization are
realized.
Flag Fund shareholders and other IEF Portfolio shareholders will share
proportionately in tax exposure for FUTURE capital appreciation, generated
by the IEF Portfolio after the Reorganization.
Q. What is the current capital gains status of the Flag Fund?
A. As of January 27, 2000, the Flag Fund had $4.14 per share in unrealized,
net capital gains. In connection with the reorganization transaction, the
Fund expects to distribute most of these capital gains to Fund
shareholders.
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Q. What will be the amount of the capital gains distribution?
A. The exact amount of the distribution will not be known until the
transaction takes place. The Fund estimated that if the transaction had
happened on January 27, 2000, the distribution would have been $3.08 per
share.
Q. What will the capital gains status of the Fund be after the capital gains
distribution?
A. After the distribution, the Fund will still have some unrealized capital
gains. The Fund estimated that if the transaction had happened on January
27, 2000, this amount would have been $0.57 per share. It is impossible to
predict, however, if, or when the amount of these unrealized gains will be
realized, and generate taxable distributions for shareholders.
Q. Will the transaction have tax consequences for me?
A. It might, depending on various facts, for example, the type of account
where you hold your Fund shares.
If you hold shares in an IRA or similar tax-deferred account, the
transaction will have no tax consequences. There will be a taxable capital
gains distribution paid prior to the Reorganization. You should consult
with your tax adviser.
